“Ask the Legal Professional”
Pittsburgh Business Times – June 20, 2014
Q: Is it safe to buy assets off of a bankruptcy company?
A: With proper due diligence – absolutely. A debtor is generally permitted to sell assets in the ordinary course of the debtor’s business. However, if the debtor is selling assets outside of the ordinary course, i.e., selling substantially all its assets, then court approval is required. Under Section 363(f) of the Bankruptcy Code, the debtor can sell assets free and clear of all liens, claims and encumbrances. This can be a very powerful and attractive tool for buyers. A successful buyer in a “363 Sale” will get a Federal Bankruptcy Court order transferring the assets free of all interests, which is probably the best protection available for buyers who don’t want to be straddled with the debts of the seller. If the sale is conducted properly, the buyer can also get a finding of being a “good faith” purchaser and close on the sale without the risk of having the sale overturned on appeal. If there are assets you want to purchase in a bankruptcy case, don’t let the bankruptcy itself scare you away. Talk to a bankruptcy lawyer about the best way to acquire the assets and protect your interest.