HOW TO SET UP AN OPEN AUCTION

Posted on 11 20,2014

When a business files for bankruptcy, one of the options they may have is to sell assets in order to pay back some of their debts. If they choose this option it is important to know that creditors and other parties of interest must be notified of the sale and approve these actions in bankruptcy court. One of the options available to sell assets is a Section 363 sale.


A Section 363 sale allows for the property to be sold free of interest if certain requirements are met. Those that seek to buy this property may be able to do so without worrying that it comes with traditional encumbrances. Property purchased in a Section 363 sale may have increased value as a result.

HOW CAN I CREATE A SECTION 363 SALE?

When a debtor in bankruptcy needs to sell property to pay off debts, it will generally occur in an open auction. This will show the debtor and the creditor the full value of the property.

In order to set up an open auction, a debtor must:

  • Set the auction date
  • Specify what items will be sold
  • Establish a break-up fee
  • Set initial bid and bidding increments
  • Have bidding procedures approved by the court
  • Listen to the commentary from creditors involved

The initial bid made by an interested party in the property is known as a stalking horse bid. The stalking horse bidder will likely work with a financial consultant or planner to incentivize establishing the first bid. If this bid is acceptable to the debtor, they will work together to develop a letter of intent or create an asset purchase agreement. As long as no other buyers come to the auction and offer a higher purchase price, the stalking horse bidder has the greatest ability to impose terms on the debtor. An example of this is to state they will only be held to this purchase if the court imposes certain bidding procedures.

Any chance someone has of purchasing the debtors property must be approved by the court, and may also be challenged by other offers by outside buyers. This will all be public knowledge to minimize the chance that these bids are not being done in good faith.

If you are wondering how to develop a Section 363 sale for your business, contact a bankruptcy attorney at the David McCormick Law Group. Going through the bankruptcy process is not only complicated, but subject to the control of the bankruptcy court as well. Working with our firm can help increase your chances of a successful bankruptcy sale to minimize your debts.

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