The bankruptcy court may need to liquidate some assets when a business initiates bankruptcy proceedings. Any proceeds from the sale of those items go to cover some of the company’s debts. The bankruptcy court refers to the sale of these assets as a “363 sale” in reference to the similarly numbered section of the U.S. Bankruptcy Code.
A 363 sale can generally only take place once a company files for bankruptcy. The bankruptcy trustee can order a 363 sale no matter whether a debtor files for Chapter 7 or 11 bankruptcy. It’s most commonly associated with the latter, though. The trustee then oversees the entirety of the 363 sale.
What considerations does the court weigh in a 363 sale?
The court can deny the sale if there’s anything amiss with it. Some factors, such as business judgments and sales prices, can lead the court not to allow a 363 sale to move forward. Companies often suffer significant financial harm when the court doesn’t approve a 363 sale.
There are instances in which the sale might be subject to a deep investigation. This can result in a denial of the sale. This typically happens if the court has reason to believe that the sale isn’t justified.
A justified 363 sale can help the company work through the bankruptcy process by providing payment to some creditors. The court ensures that debtors make these repayments in accordance with the law.
Finding answers if your business is preparing to file bankruptcy
Any business owner who needs to file for bankruptcy protection should ensure they have the help of an attorney who’s familiar with the ins and outs of different debt repayment options, including a 363 sale. Your knowledge about these options can aid you in making decisions that are in the best interests of your company.