A sale conducted per section 363(b)(1) of the Bankruptcy Code outside of the ordinary course of the business of the debtor, and not under any plan of reorganization. By a section 363 sale, a debtor (as DIP or via a chapter 7 trustee) may sell substantially all of its assets, or any part of its assets (e.g., a business line, a machine, intellectual property, etc.). As occurred in the General Motors and Chrysler chapter 11 cases, a debtor may sell its business or part of it as a going concern. Very often, section 363 sales are accompanied by competitive bidding or even a more-or-less formal auction process. In larger sales, the debtor may propose bidding procedures for approval by the court. Creditor parties will scrutinize such procedures to ensure that they warm rather than chill the chances for the highest sale price. Sometimes the bid procedures are tied to the existence of a “stalking horse bidder,” i.e. a party that has bound itself to purchase the assets at a price certain if no other qualified bids exceed that price.
Section 363 sales are attractive to bidders in part because section 363(f) can be applied to provide that the sale is free and clear of all liens, claims, and encumbrances on the sold assets – all those “interests” would then attach to the proceeds of the sale rather than the assets. Further, section 363(m) can be applied to limit the ability of discontented parties to undo the sale of assets to a good faith purchaser: no such appeal is permitted unless the authorization of the sale is stayed by the court pending such appeal.
Editor’s note: For more information on “stalking horse bidders” read 90 Second Lesson: To Stalk or Not to Stalk? Why be a Stalking Horse Bidder?