1. BUYER (AND SELLER) BEWARE: DISTRESSED M&A AND SUCCESSOR LIABILITY
Robert Richards Partner
Dentons US LLP T
Samuel Schlessinger Partner
Dentons US LLP T

2. Key Causes of Distress Overleverage Mismanagement
Uninsured or Legacy Liabilities
Disadvantageous Contracts or Leases
Industry Challenges Long-Term
Industry Challenges Short-Term
General or Regional Economic Problems
June 8, 2016

3. Key Distressed Acquisition Structures
Asset Acquisition
Purchase from Foreclosure Sale
Purchase Debt/Loan to Own
Buy from Receiver or Assignee for the Benefit of Creditors
Section 363 Bankruptcy Purchase
Chapter 11 Plan
Modified Equity Purchase
June 8, 2016

4. Asset Acquisition Generally Do Not Assume Liabilities
The More Liabilities Assumed, the Greater the Risk on Successor Liability. Also Need to Evaluate Other Successor Liability Factors
Need Lien Releases
May Need Consents to Assignments of Contracts, Leases, IP Licenses
Preclosing Due Diligence is Key
Evaluate Whether any Assets are Owned by Insiders or Affiliates
June 8, 2016

5. Purchase from Foreclosure Sale
UCC Article 9 for Most Personal Property - Nonjudicial and Quick
Real Property - Judicial versus Deed of Trust States
Need Willing Lender to Conduct Sale
Sale Needs to Be Conducted on Commercially Reasonable Basis
Need to Confirm Lender Can Deliver All Assets Needed for Operating Business
Can Include Foreclosure on an Equity Pledge/Mezzanine Deal (but de facto Subject to Liabilities at the Subsidiary Level)
June 8, 2016

6. Purchase Debt/Loan to Own
Purchase Debt from Original Lender
Secured Debt - May be Able to Conduct Foreclosure Sale to Get Assets; Some Recent Caselaw Suggestions Credit Bid Rights May be Limited to Actual Amount Paid for the Debt or Otherwise Limited in Certain Scenarios
Unsecured Debt - Need Sufficient Amount - May Need to Force Chapter 11 Case to Convert Debt to Equity
Negotiated Change of Control Generally Requires Insider Cooperation
June 8, 2016

7. Buy from Receiver or Assignee for the Benefit of Creditors
Risk of Competitive Bidders
Risk of Credit Bid if Do Not Have Advanced Deal with the Secured Lender
Generally "Where Is/As Is"
Can be Quicker/Cheaper than Bankruptcy Purchase
Confirm Powers of Receiver/Assignee
June 8, 2016

8. Bankruptcy Code Section 363 Asset Purchase
Free and Clear Order
Most Antiassignment Provisions in Contracts and Leases Overridden; Need Further Analysis on IP Licenses and Personal Services Contracts
Generally Competitive Auction Process
Sale Process may get Delayed or Derailed
Possible Stalking Horse Bid Protections
June 8, 2016

9. Chapter 11 Plan Bankruptcy Court Protections
Ability to Take Clear of Transfer Taxes
Longer and More Expensive Than Section 363 Purchase
Creditor Voting Process on Plan - Generally Have to Address Division of Proceeds
May be Possible to Preserve Tax NOL Carryforwards
Third Party Releases and Injunctions May be Possible - Often Desirable in Asbestos and Other Mass Tort Situations
June 8, 2016

10. Modified Equity Purchase
Sometimes Used if There is a Material Nonassignable Contract, License or Leases Where There is no Change of Control Default
Can have Certain Key Creditors Agree to Release Claims and any Liens or Sell Claims and Liens to an Ally at a Discount
Take Subject to any Unknown or Contingent Claims
June 8, 2016

11. Special Concerns for Buyers
Successor Liability
Trust Fund Taxes
Environmental, Especially for Ongoing Owned and Operating Real Properties
Union and Pension
Effective Acquisition of All Assets Needed to Operate Business
Holdback Notes or Other Post-Closing Effective Remedies
Post-Closing Cooperation may be Illusory
Subsequent Fraudulent Transfer Attacks by Unpaid Creditors or Bankruptcy Trustee
June 8, 2016

12. Special Concerns for Sellers and Their Officers/Directors/Shareholders
Trust Fund Taxes
Guarantees
Any Required Equityholder Approvals or Vote
Fiduciary Duty to Creditors
Aiding or Abetting Fraudulent Transfer
Application of Proceeds and any Arguable "Diverted" Proceeds
June 8, 2016

13. Special Concerns for Lenders
Public Auction v. Private Sale
Stalking Horse Bid v. Open Auction
Commercially Reasonable Sales Including Advertising, Other Direct Marketing and Length of Bid Process
Limiting Buyer Recourse to Lender
Lender Liability
How to Operate Collateral if Credit Bid/Holding Periods
Potential Higher Protections and/or Recoveries from Operating or Selling Collateral through a Receiver
June 8, 2016

14. Thank you Dentons US LLP 233 South Wacker Drive Suite 5900
Chicago, IL
United States
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