What is a bankruptcy 363 sale?

A 363 sale is named after that particular section of bankruptcy code. It is designed to allow a corporation in Chapter 11 to sell off assets rapidly. The sale of Chrysler auto to a private equity fund is one such example of a 363 sale. It is becoming used more often as a way to keep a business running and circumvent the drawn out process of waiting for all parties to vote on a sale.

A normal chapter 11 bankruptcy is for reorganizing the corporation. Creditors get their payments, ranging anywhere from pennies on the dollar to almost the entire amount. It depends on how much money they business has at hand during filing. What slows things down is that in order to have a successful outcome, all of the creditors have to agree to take the amount that they are offered. A creditor may decide to turn down the offer and try for a higher amount.

The 363 option drastically changes the game. Instead of waiting around for all involved, the company starts out by offering itself up to sale to what is known as a stalking horse. This entity agrees to purchase assets from the debtor, then both cooperate to offer the company up to other bidders. Once the business has been sold to a successful bidder, the stalking horse is paid a fee and is paid for other costs that are incurred while setting up the bidding process.

Someone who is seeking to use chapter 11 reorganization for their business needs to take a close look at which option makes the most sense.