Understanding 363 asset sales and purchases

Under section 363 of the bankruptcy code, a debtor may sell assets with the approval of a court, to pay some of its debts to creditors.

Three parties can benefit, and these are the advantages for them:

  • The debtor: It is in their hands to try and raise as much money as possible from the sale of their assets.
  • The creditor: They can refuse to accept the price you are selling an item is being sold for if they feel it could be sold for more. They can also buy assets themselves to the value of the debt due to them. If the assets were used as collateral against the money they loaned. They do not need to pay for these purchases in cash. They can set it against the money owed to them, in what is known as a credit bid.
  • The buyer: Assets sold due to bankruptcy are often available at an attractive price.

There are some disadvantages too. The bidding process allows others to see what has been bid or what price an asset fetched. If someone knows you bought an asset for a knockdown price, you may have trouble selling it on for the value you hope.

The court can also reverse a 363 sale if they find a fault in how it was carried out. It would be a waste of time and money for those who bought or sold.

Bankruptcy can be complex; a 363 asset sale is just one of the options open to you.