Most companies that file bankruptcy end up liquidating, that is, ceasing business. Some bankrupt companies, however, even though they have accumulated substantial debt, have a customer base that will produce cash flow sufficient to fund future operating expenses. Federal bankruptcy law provides a procedure for a purchaser to buy a distressed seller out of bankruptcy. The procedure is known as a motion, or request, to sell assets free and clear of liens. Basically, a seller with an ongoing business in bankruptcy has the right to sell its assets (i.e., its business) to a purchaser. Creditors like banks that hold the assets of the bankrupt seller as collateral are required to either be paid in full or consent to the sale. Contrary to popular belief, the purchase price is not required to be fair market value. Often, the deal put on the table by the purchaser is the creditors’ only and best chance of being paid anything. So the moral of this story is that a seller’s bankruptcy filing does not preclude the purchase of the seller’s business. Indeed, it may provide a substantial long-term benefit to an opportunistic buyer.
ABOUT GLENN D. SOLOMON
Glenn D. Solomon Esq., is a principal at the law firm of Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years, with extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress
ABOUT OFFIT KURMAN
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