The biggest trend in Chapter 11 bankruptcies over the past 10 years is to sell assets through a “Section 363 sale,” named for Section 363 of the Bankruptcy Code, which describes the standards for sales in bankruptcy court. Previously, in most Chapter 11 cases, the debtor would propose a Chapter 11 plan. In successful cases, the Chapter 11 plan would be approved by creditors and by the court. If a debtor was selling substantially all of its assets, the sale would be part of the Chapter 11 plan.
With greater and greater frequency, debtors and their buyers have eschewed the more laborious Chapter 11 Plan process, opting to consummate the sale transaction by way of a simple motion under Section 363 of the Bankruptcy Code. In order to obtain court approval of a Chapter 11 Plan, a debtor must first obtain approval of a disclosure statement, must then obtain sufficient votes from creditors, and finally, must meet other stringent Bankruptcy Code requirements. This takes time, generally at least 3 months. It is also expensive, and the outcome is uncertain.
In contrast, a motion to sell assets free and clear of liens under Section 363 can be accomplished upon regular notice—21 days in Southern California—and sometimes on even shorter notice if the Court allows it. In addition, the paperwork is much less onerous and thus less expensive for the bankruptcy estate.