Courts Tack Fee to Bankruptcy Sale Motions

Plenty of ink has been spilled on how bankruptcy courts today see more sales of assets and businesses rather than true reorganizations. Now, courts have found a way to turn what seems to be a lasting trend into a moneymaker.

Starting Dec. 1, anyone who files a motion to sell assets—whether it’s a billion-dollar business, a single corporate jet or a tiny plot of land—will have to pay a $176 administrative fee for the privilege.

“This is going to be paid in many Chapter 11 cases, and probably in Chapter 7 [liquidation] cases when trustees look to sell assets,” said Cooley LLP restructuring lawyer Robert Eisenbach, who pointed out the looming change on Cooley’s bankruptcy blog.

The fee comes as federal courts face a funding crisis. Congress appropriates most of the federal judiciary’s operating funds, so government budget cuts hit the judiciary hard. A small percentage of operating funds come from fees that the federal courts charge. It’s clear that bankruptcy pays, generating about 79% of those fees, according to a recent report from the Judicial Conference of the United States.

The conference’s bankruptcy committee recommended the sale motion fee, weighing the amount tied to the value of the sale before deciding on a flat fee, according to a committee report from September that Bankruptcy Beat viewed.

The fee will specifically apply to motions to sell assets free and clear of liens, encumbrances and interests—a lawyerly way of saying that the buyer will be able to leave behind anything tying up the assets in bankruptcy. Put even more simply, such sales essentially cleanse the assets, and it’s rare for companies to seek to sell assets without such a cleansing.

“That’s really one of the big benefits of a bankruptcy sale,” Mr. Eisenbach told Bankruptcy Beat.

Adding the fee comes on top of other administrative fees companies already pay in bankruptcy, from a $1,167 filing fee and $46 administrative fee charged to file a Chapter 11 petition to a new $25 claim-transfer fee. That’s not to mention the millions of dollars in legal and other professional fees a company racks up in Chapter 11, all of which goes to say bankruptcy doesn’t come cheaply.

It’s unclear whether the new fee will cause any pushback, whether from the companies that have to pay it or the creditors whose claims are paid after such fees.

“It’s $176, not $1,000, so it may be something that estates and debtors just manage to absorb,” Mr. Eisenbach said. “But it isn’t $25, either.”

Write to Jacqueline Palank at [email protected]. Follow her on Twitter at @PalankJ.