Valuing Commingled Inventory Stock Asset Recovery under Restructuring Stays
Valuing commingled inventory under stays requires deducting unmingling costs and secured lender haircuts from gross landed cost before allocating pro-rata recovery
Section 363 Sales
Meaning
Bankruptcy asset transfer allows a company to sell its property free and clear of all liens, claims and interests. Section 363 sales are an expedited way to transfer a manufacturer’s production assets to a new owner during a chapter 11 proceeding. This process is often faster and less expensive than a full plan of reorganization and is used to preserve the value of a failing business.
Clean Acquisition
The buyer receives the machinery, inventory and intellectual property without taking on the old debts of the previous owner. When a section 363 sales is completed, the proceeds from the purchase are distributed to the creditors according to their legal priority. This allows a healthy company to acquire a struggling competitor’s factory and integrate it into its own operations without the risk of being sued by the old creditors.
The court’s approval of the sale provides a high level of legal certainty for the buyer.
Stalking Horse
This process often begins with a lead bidder who sets the floor price for the assets in an auction. An initial offer for a section 363 sales is subject to higher and better bids from other interested parties. This competitive bidding process ensures that the creditors receive the maximum possible value for the assets being sold.
While the stalking horse bidder takes on the risk of doing the initial due diligence, they are often compensated with a break up fee if they are outbid.
Operational Impact
Factory operations can often continue throughout the entire sale process, which prevents the loss of skilled workers and customers. Section 363 sales are frequently used to transition a business from an insolvent owner to a well capitalized one in a matter of weeks. This speed is necessary in industries where a long shutdown would lead to the loss of market share.
Section 363 sales facilitate the rapid redeployment of industrial assets.