Bobby Guy is a deal lawyer who specializes in
fixing, buying, and selling struggling healthcare
companies. He is a shareholder in the law firm
of Polsinelli P.C. and a founding member of
the firm’s Nashville office. He can be reached
at firstname.lastname@example.org or 615-259-1511.
affiliates had properly approved the
proposed sale procedures. The court then
conditioned the proposed sale process
on several requirements, including that
the various boards hold meetings to
consider the conflict of interest issues
and to determine how they wished to
proceed in directing the company’s
counsel with regard to the sale.
The result of Energy Future has been
that, in connection with a proposed
363 sale, sellers’ counsel have begun
advising in many cases that the board
hold a formal meeting to approve the
sale procedures at the outset and then,
once the auction has occurred, a second
meeting to approve the results of the
auction prior to presenting the winning
bidder to the court. 20 This is taking
place even in cases in which there is
no alleged conflict of interest for the
board. It may be that buyers will also
begin requiring in their asset purchase
agreements the satisfaction of corporate
formalities in connection with closing,
although this is likely an overextension
of the ruling in Energy Future. 21
In Energy Future, the court was making
clear that the board during bankruptcy
could not abdicate its role in guiding
the company. The court was not,
however, abdicating its own authority
to approve a 363 sale, power the court
has regardless of corporate formalities. A
court order approving a 363 sale should
continue to be clear authority for a
debtor and its buyer to close a sale. J
1 2014 WL 3542133 (July 17, 2014).
2 632 F.3d 89 (3d Cir. 2011).
3 Note that the recently issued "Final Report and
Recommendations of the ABI Commission to
Study the Reform of Chapter 11" suggests that
363 sales should not be free of successorship
liability under federal labor laws (which, while
undefined in the report, probably include ERISA),
although the commission recommended
that 363 sales should be free and clear of civil
rights claims. The court in Ormet reasoned that
federal law does not elevate labor law to a higher
priority than civil rights law, and therefore,
under existing 3rd Circuit precedent allowing
sales free and clear of civil rights claims, there
was no reason to treat the two differently.
4 739 F.3d 215.
5 See 11 U. S.C. Section 363(f)( 5) (permitting sale
free and clear if entity could be compelled to
accept a money satisfaction of its interest).
6 See, e.g., In re Nevel Props. Corp., 2012 WL
528179, 2012 Bankr. LEXIS 551 (Bankr. N.D.
Iowa, Feb. 17, 2012); In re Tousa, 393 B.R. 920,
924 (Bankr. S.D. Fla. 2008). See generally,
Wolf-Smith, “Shedding Burdensome
Restrictive Covenants in Real Estate Sales,”
Am. Bankr. Inst. J. at 30 (Nov. 2014).
7 11 U.S.C. Section 365(n).
8 607 F.3d 957 (2010).
9 751 F.3d 955 (2014).
10 ____ U.S. ____, 132 S.Ct. 2065 (2012).
11 In re DBSD N. Am., Inc., 634 F.3d 79 (2d Cir. 2011).
12 510 B.R. 55 (2014).
13 512 B.R. 798 (2014).
14 According to the humorous Devil’s Dictionary
of Bankruptcy Terms, the definition of a 363
auction is, “What the stalking horse hopes
a 363 sale will not become,” Anders et al.
(2007 Peppercorn Press) (emphasis added).
15 See, e.g., River Terrace Estates, Inc., Case No.
14-11829 (Bankr. N. D. Ind) (confirmed Chapter
11 plan with non-waivable deadline and firm
“limited contingency” bid package requirements,
to prevent potential for bidding disputes and
to ensure maximum value without delay
where bondholder direction unavailable).
16 Case No. 12-21085 (Bankr. D. Wyo. Aug. 6, 2013).
17 See Morgan, “363 Asset Sales: Delaware
Bankruptcy Court Agrees That ‘It ain’t over ’til
it’s over,’” Weil Bankruptcy Blog (Sept. 13, 2013).
18 507 B.R. 753 (Bankr. D. N.M. 2014).
19 Energy Future Holdings Corp., et al., Dkt. No.
2699, Case No. 14-10979 (D. Del. Nov. 4, 2014).
20 For example, the debtor undertook a very
deliberate board approval process to confirm
the winner of the auction in the In re
Sears Methodist Retirement Systems, Inc.,
Chapter 11 proceedings in February 2015.
Case No. 14-32821-11 (N.D. Tex. 2014).
21 For disclosure purposes, the author notes that
his current firm ( 1) acts as buyers’ counsel
in the Sears Methodist case, and ( 2) acts as
Delaware counsel and conflicts counsel to
an official committee in Energy Future. In
addition, the author at his former firm acted
as debtor’s counsel in the River Terrace case.
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