1. Class 13 Bankruptcy, Spring, 2009 Sales of Assets Randal C. Picker Leffmann Professor of Commercial Law The Law School The University of Chicago 773.702.0864/r-picker@uchicago.edu Copyright © 2005-09 Randal C. Picker. All Rights Reserved.

2. August 27, 2015Copyright © 2005-09 Randal C. Picker2 363 n Use, sale, or lease of property u (b)(1) The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate ….

3. August 27, 2015Copyright © 2005-09 Randal C. Picker3 363 (cont.) n Use, sale, or lease of property (cont.) u (c)(1) If the business of the debtor is authorized to be operated under section 721, 1108, 1203, 1204, or 1304 of this title and unless the court orders otherwise, the trustee may enter into transactions, including the sale or lease of property of the estate, in the ordinary course of business, without notice or a hearing, and may use property of the estate in the ordinary course of business without notice or a hearing.

4. August 27, 2015Copyright © 2005-09 Randal C. Picker4 363 (cont.) n Use, sale, or lease of property u (e) Notwithstanding any other provision of this section, at any time, on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest. This subsection also applies to property that is subject to any unexpired lease of personal property (to the exclusion of such property being subject to an order to grant relief from the stay under section 362).

5. August 27, 2015Copyright © 2005-09 Randal C. Picker5 Lionel n Core Facts u Lionel files for C11 u Holds as investment stock of Dale u Lionel owns 82% of Dale; other 18% owned by public and stock traded on American Stock Exchange

6. August 27, 2015Copyright © 2005-09 Randal C. Picker6 Lionel u Creditor’s committee pushes for sale of Dale prior to plan of reorganization as device to fund plan u Equity committee opposes preplan sale n Key Question u What, if anything, limits the possible scope of a sale under section 363(b)?

7. August 27, 2015Copyright © 2005-09 Randal C. Picker7 Possible Approaches n Past Practice under the Chandler Act? u “Upon cause shown” u Focus on “perishability” of the asset w Sell the asset to protect against loss in value

8. August 27, 2015Copyright © 2005-09 Randal C. Picker8 Possible Approaches n Achieve Consistency with C11 Protections? u Procedures? w Structured disclosure requirements for C11 plan u Price? w “Reorganization under the 1938 Act was often unfair to public investors who lacked bargaining power”

9. August 27, 2015Copyright © 2005-09 Randal C. Picker9 Evidence in the Case n Value of Stock u Not a wasting asset u Financial expert says Dale stock has low variance n CEO Testimony u Wants to keep the stock n What should we make of this information?

10. August 27, 2015Copyright © 2005-09 Randal C. Picker10 Court’s Conclusion n Holding u “There must be some articulated business justification” u “Good business reason” u Making creditor’s committee happy insufficient and “ignores the equity interests required to be weighed and considered under Chapter 11”

11. August 27, 2015Copyright © 2005-09 Randal C. Picker11 And the Laundry List n Consider A Non-Exclusive List: u “the proportionate value of the asset to the estate as a whole; u the amount of elapsed time since the filing; u the likelihood that a plan of reorganization will be proposed and confirmed in the near future; u the effect of the proposed disposition on future plans of reorganization; u the proceeds to be obtained from the disposition vis-a-vis any appraisals of the property, which of the alternatives of use, sale or lease the proposal envisions; and u most importantly perhaps, whether the asset is increasing or decreasing in value”

12. August 27, 2015Copyright © 2005-09 Randal C. Picker12 Sales Strategy n Key Question u How should we sell assets in bankruptcy? w Before the plan is confirmed? w Within the plan? w What are the advantages and disadvantages of those approaches?

13. August 27, 2015Copyright © 2005-09 Randal C. Picker13 363 (cont.) n Use, sale, or lease of property u (f) The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if - w (1) applicable nonbankruptcy law permits sale of such property free and clear of such interest; w (2) such entity consents;

14. August 27, 2015Copyright © 2005-09 Randal C. Picker14 363 (cont.) w (3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property; w (4) such interest is in bona fide dispute; or w (5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

15. Sales Free and Clear n Hypo 1 u Trustee wants to sell property subject to a security interest u Proposed sale price is $10,000; debt secured by property is $8,000 n Sale free and clear allowed? August 27, 2015Copyright © 2005-09 Randal C. Picker15

16. Sales Free and Clear n Hypo 2 u Trustee wants to sell property subject to a security interest u Proposed sale price is $10,000; debt secured by property is $18,000 n Sale free and clear allowed? August 27, 2015Copyright © 2005-09 Randal C. Picker16

17. Sales Free and Clear n Hypo 3 u Property is piece of real estate subject to city zoning rules u Property subject to zoning rule is worth $10,000 u Property value absent restriction is $15,000 u Trustee seeks to sell for $15K free and clear of zoning rule n Sale free and clear allowed? August 27, 2015Copyright © 2005-09 Randal C. Picker17

18. Sales Free and Clear n Hypo 4 u Property is piece of real estate subject to federal environmental statute u Property is dirty; $100,000 will be required to clean it up; clean property would be worth $125,000; dirty property would sell for $25,000 u Federal law provides that any owner of the property is obliged to clean the property August 27, 2015Copyright © 2005-09 Randal C. Picker18

19. Sales Free and Clear u Trustee seeks to sell the property at auction free and clear of clean up obligation u Proposes to give feds $100,000 unsecured claim in the case n Sale free and clear allowed? August 27, 2015Copyright © 2005-09 Randal C. Picker19

20. August 27, 2015Copyright © 2005-09 Randal C. Picker20 TWA n Core Facts u 9 Jan 01: American agrees to buy TWA assets through bankruptcy u 10 Jan 01 [not 02]: TWA files C11 (for the third time!) u Feb 01: Sale Approved

21. August 27, 2015Copyright © 2005-09 Randal C. Picker21 The Sale Order n Sec. 363(f) Free and Clear Provision u “the free and clear delivery of the Assets shall include, but not be limited to, all asserted or unasserted, known or unknown, employment related claims, payroll taxes, employee contracts, employee seniority accrued while employed with any of the Sellers and successorship liability accrued up to the date of closing of such sale.”

22. August 27, 2015Copyright © 2005-09 Randal C. Picker22 The Sale Order n The Injunction u “Pursuant to §105(a) and §363 all Persons are enjoined from taking any action against Purchaser or Purchaser’s Affiliates including, without limitation, TWA Airlines LLC, to recover any claim which such Person had solely against Sellers or Sellers’ Affiliates.”

23. August 27, 2015Copyright © 2005-09 Randal C. Picker23 The Challenge n EEOC u Contended it had employment discrimination claims that could be asserted against TWA u Wanted to assert those against American as successor to the assets

24. August 27, 2015Copyright © 2005-09 Randal C. Picker24 The Challenge n Travel Voucher Program u Awarded to TWA flight attendants as settlement of a sex discrimination class action

25. August 27, 2015Copyright © 2005-09 Randal C. Picker25 Classifying These n Key Questions u Are these “claims” under Sec. 101(5)? u Are these “interests in property” for the purposes of Sec. 363(f)? u For 363(f)(5), could “such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest”?

26. August 27, 2015Copyright © 2005-09 Randal C. Picker26 101(5) n ‘Claim’ means— u (A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or u (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured;

27. The Voucher Claim n Four Versions u 1. They sue; win; receive damage award in cash of $100,000; not paid; TWA files C11 u 2. Same as above, except TWA forced to give them security interest in airplane u 3. Same as 1 above, except award is to be in services going forward, meaning $100,000 in future TWA flights; not used up; no SI; TWA files C11 August 27, 2015Copyright © 2005-09 Randal C. Picker27

28. The Voucher Claim u 4. Same as 1 except two possible state laws relevant w “Claims of this sort are not dischargeable in a federal bankruptcy proceeding” w “Claims of this sort attach to whomever holds the assets that gave rise to these claims” August 27, 2015Copyright © 2005-09 Randal C. Picker28

29. The EEOC Claim n How does this compare to the voucher claim? August 27, 2015Copyright © 2005-09 Randal C. Picker29