« Waiting for RUFO | Main | Mortgage Servicer Privity with Borrowers »

Catching up

posted by Stephen Lubben

I've been remiss in cross-posting my Dealb%k columns. Both of the most recent ones have commented on the ABI's chapter 11 reform proposal. You can find them here.


So the Commission generally agrees that 363 sales need more chapter 11 plan like protections.

But isn’t there really only one problem with 363 sales as presently conducted outside a plan – that anti -successor liability injunctions are allowed without giving respect to 363(e).

That is, any claim can be promoted to an interest in the assets to be enjoined from collection against the buyer without guaranteeing adequate protection of that claim, whose burden falls on the debtor.

I must have missed this criticism in the Commission’s recommendations.

Surely any constitutionally minded defender of property rights ought to question the wisdom of creating an interest in assets through 363(f) and then extinguishing common law rights to enforce those property rights, without affording just compensation of those extinguished rights.


I don't see any particular reason why successor liability should survive a sale of assets under 363 but not 1141. I think what the Commission was saying was to make this official rather than pretending it was the case by the flawed rhetorical trick you specify.

I agree that confirmation of a plan anticipates and is the basis for enjoining successor claims, but a sale under 363 is NOT the equivalent of confirming a plan, the vote being what it is and all.

For example:

1. 1141 discharges debts after confirming a plan, but a 363 sale often results to conversion to chapter 7 in which corporate debtors are not entitled to a discharge.

Therefore, a non-plan 363 sale with a successor liability injunction in effect discharges the buyer of claims against the debtor, when the debtor does not enjoy such protection. (Is this a “Uniform laws on the subject of bankruptcy” problem/challenge?)

2. Additionally, the Commission mentions that 363 sales can avoid Chapter 11's “absolute priority rule”.

But 363 sales avoid absolute priority only because of successor liability injunctions; that is, equity holders satisfy the "ownership" criteria of successor liability which an injunction blocks from raising but a plan preempts through absolute priority.

So maybe I misunderstood that you thought I was playing the rhetorical trick.

The comments to this entry are closed.


Current Guests

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.

News Feed



  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.


Powered by TypePad