Shared by Gregg Yorkison of Clare York Group.
Mergers and Acquisitions (M&A) are referred to as §363 sales in bankruptcy court. Here’s a rundown, provided by Gregg Yorkison of Clare York Group Los Angeles It shows what that actually means for a company’s assets going through the process. It can seem intimidating and unclear at first. However, there is a well-defined process that will help you to discover how the assets of a company will be sold or auctioned. Our expert guide in this is Gregg Yorkison of Clare York Group Los Angeles He has over twenty-four years of experience in corporate finance transactions and operational management that combine to offer middle-market clients a diverse set of perspectives, solutions, and expertise. Mr. Yorkison has significant experience in valuation, M&A (sell-side and buy-side), §363 sales, Assignment for Benefit of Creditors (“ABC”) transactions, debt placement, refinancing, recapitalization, capital raising mandates, and licensing.
“(A §363 sale is) procedure under Section 363(b) of the Bankruptcy Code that allows a company to sell its assets outside of the ordinary course of business during bankruptcy proceedings. Section 363 sales require the approval of the bankruptcy court, obtained on a motion and hearing, and are typically conducted by public auction under the supervision of the bankruptcy court. A main advantage of a section 363 sale is the ability to obtain assets free and clear of liens and most liabilities attached to the assets.”
The benefits of §363 sales
While not the only option available, Gregg Yorkison of CYG notes that a §363 sale can potentially save both time and money. Both are valuable, especially during the M&A of a distressed company. For many companies, it is the best and quickest path ahead.
“One of the most important decisions that firms and courts face in bankruptcy is how to dispose of company assets… A popular mechanism is contained in §363 of the bankruptcy code. It enables the sale of a firm’s assets with court approval. This allows for a quick sale of a firm without the need for developing and approving a plan of reorganization under Chapter 11. It can save both time and money, as the firm’s assets may otherwise sit idle or depreciate.”
Image credit: Olia Danilevich
Assets in §363 sales – the first bid
Within a §363 sale, assets are sold free and clear of liens and encumbrances. They are marketed, and the 1st bid acceptable to the court becomes Stalking Horse. Gregg Yorkison of Clare York Group Los Angeles explains what that means. He notes that the first bid for a bankrupt company or that company’s assets is prearranged to act as a reserve bid, or Stalking Horse, maximizing the value of the assets and guarding against the pitfall of low bids in a court auction.
Image credit: Sora Shimazaki
Proceeding with the auction
After the prior budding procedures are entered, an over-bid marketing effort ensues. If a qualified over-bid is submitted, an auction is conducted. From there, the auction proceeds in a straightforward manner, and the highest and best bid wins the auction. At that point, the company’s obligation regarding the liquidation of assets has been met for bankruptcy purposes.
