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Bankruptcy Court Can Order Liquidation Of Business Assets

Posted By admin || 23-Aug-2011

Bankruptcy Court Can Order Liquidation Of Business AssetsIn a recent Chapter 11 bankruptcy, the bankruptcy court ordered that a debtor reimburse qualified bidders for expenses incurred in connection with the sale of a substantial asset of the debtor's estate. The bankruptcy court determined that such reimbursements were proper under the business judgment standard in section 363(b) of the Bankruptcy Code.

Section 363 of the Bankruptcy Code addresses the debtor's use of property of the estate and incorporates a business judgment standard. Subsection 363(b) provides that "a debtor-in-possession, `after notice and hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate.'" In such circumstances, "for the debtor-in-possession or trustee to satisfy its fiduciary duty to the debtor, creditors and equity holders, there must be some articulated business justification for using, selling, or leasing the property outside the ordinary course of business."

In this bankruptcy case the parent company of the debtor challenged the bankruptcy trustee and attempted to appeal to the district court. However, since the district court has no jurisdiction over a final order, they did not side with the parent company.  It's important to note that the decision to force the debtor to reimburse the bidders was a determined to be a sound financial decision that worked to protect the interests of the bankruptcy estate, creditors and the debtor.  The definition of what is a sound business justification is flexible and left to the discretion of the bankruptcy court. And since the order to reimburse bidders did not cause significant harm to the bankruptcy debtor, the decision was affirmed when appealed again.

Categories: Bankruptcy
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