The 363 Bankruptcy Sale Procedure – Broken Down and Simplified

Posted by Yosina M. Lissebeck, Esq. on December 2, 2014

Guest Post By Yosina M. Lissebeck, Esq.
Lissebeck Law

Bankruptcy Code § 363 authorizes a debtor-in-possession or Trustee, to sell property of the estate other than in the ordinary course of business. A proposed sale of estate property will be approved if it is in the best interests of the estate, based on the facts and history of the case.[1] Before the Court can approve such a proposed sale, the Court must find that there is a valid business justification for the sale.[2] In addition to a sufficient business reason for the sale, the Court must find (1) the sale is in the best interest of the estate; (2) is fair and reasonable; (3) the assets to be sold were adequately marketed; and (4) was negotiated in good faith; and (5) that the buyer is proceeding in good faith; and (6) the sale is an “arms-length” transaction.[3] Lastly, the Court must find that the debtor-in-possession gave adequate and reasonable notice of the sale.[4]

In most circumstances, the DIP/Trustee will sell any and all assets of the estate that have equity available to pay creditors. Equity is determined by looking at the value of the asset, deducting any claim of exemption the debtor may have, and usually deducting something for the costs of the sale. The DIP/Trustee will then market the property to be sold. If the property is real property or IP, the bankruptcy estate may hire a broker to assist with the sale. If the property is personal property, the DIP/Trustee may reach out to parties he knows are interested in purchasing those types of assets, or may list it on various websites – including Inforuptcy. If you are interested in purchasing an asset, it is always best to reach out to the DIP/Trustee and find out what the Estate’s intent is in selling it. 

There are various types of sales that can take place, but the two most typical are a private sale, and a sale subject to overbid. A private sale is a sale between just the Estate and the purchaser. A sale subject to overbid is a sale between the Estate and the purchaser; but a third party can come into the process and state that it is willing to purchase the asset for more than the sale price, and then there will be bidding between the parties, like at an auction. Once an offer is obtained, the DIP/Trustee will negotiate and ensure that the relevant information, type of sale, and language is in the purchase agreement or sale documents. All agreements are subject to Bankruptcy Court approval.

Thus, once the parties agree to the terms, the DIP/Trustee will file a motion, with supporting documents including the agreement itself, obtain a hearing date, and serve these documents on all creditors and parties in interest. It usually takes 30 days from the date the motion is filed, before the matter is heard by the Court. If no party objects to the sale, and the Court determines that the factors above have been satisfied, it will approve the sale. An Order will be submitted by the DIP/Trustee and entered by the Court, usually within the week. The Order is deemed final 14 days after entry. If there was an escrow, it can close; otherwise any and all appropriate transfer documents can be exchanged. 

Now of course, as the title of this blog states: this is “broken down and simplified.” That means there may be factual circumstances, local bankruptcy court preferences, and procedural requirements that may differ. Thus, it is always best to contact a bankruptcy practitioner to answer any questions or assist you with the sale process.


[1] In re American West Airlines, 166 B.R. 908, 912 (Bankr. D. Ariz. 1994), citing In re Lionel Corp., 722 F.2d 1063, 1071 (2nd Cir. 1983).

[2] See, e.g., In re 240 North Brand Partners, Ltd., 200 B.R. 653, 659 (9th Cir. BAP 1996).

[3] In re Wilde Horse Enterprises, Inc., 136 B.R. 830, 842 (Bankr. C.D. Cal. 1991).

[4] Ibid.

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