Maya Pogoda and Sandra Sternberg: “Communications and the 363 Sale Process”

From the Daily Bankruptcy Review

As the economy continues to throttle more and more financially borderline corporations, troubled companies and their advisers are increasingly turning to what is known as the “363 sale” to engineer their way out of bankruptcy and liquidation. General Motors did it; Chrysler did it; the Chicago Cubs did. Companies as diverse as publisher Freedom Communications and government information technology contractor BearingPoint are turning to 363 sales to secure a future for their businesses.

Often negotiated as part of a pre-negotiated or prepackaged Chapter 11, the 363 sale, named after the section of the Bankruptcy Code in which it is found, allows debtors to sell assets “free and clear” of all liens, claims and encumbrances. It also provides a controlled process for entertaining and evaluating bids and completing the sale process expeditiously.

But while the 363 process may be straight forward and relatively swift, the potential for disrupting the business is not. From the time the possibility of a sale process is announced to the time it is completed may mean serious distraction to the debtor’s ongoing business, as employees, customers and vendors, in particular, ponder the future of their jobs, their business relationships and the products they purchase. And those imponderables surely impact a business’ performance during this time and have a direct impact on how it is valued during the process.

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