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Selling a business in bankruptcy

Despite the best efforts of business owners in Rockingham County and throughout the rest of the U.S., companies often see their debt struggles force them into considering bankruptcy. If an executive or ownership group must pursue such an action, some of its members may suggest trying to sell the business in order to avoid the potential for heavy financial losses. One may think that trying to sell a business in bankruptcy may be next to impossible, as who would want to buy a company that is already struggling? Yet for some entities, any of the over 24,000 businesses that the American Bankruptcy Institute reported to have sought bankruptcy protection in 2015 may actually be an attractive asset to acquire.

The reason why some companies may not shy away from others going through bankruptcy is because the debts of the targeted organization do not carry over in a sale. Thus, the acquiring company may be able to secure the targeted company’s resources, yet the sellers will still be liable to their creditors. This means that those considering selling their struggling businesses should first consider whether the proceeds would be sufficient to settle their debts.

Many companies may go into a bankruptcy case hoping to get the chance to reorganize themselves in order to continue their operations. Some may subsequently find reorganization to not be feasible, while others may have their reorganization plans rejected by their creditors. In either case, company ownership may then try to sale the business’ assets (including the company itself) in a “363 sale.” Named for Section 363 of the U.S. Bankruptcy Code, this allows for the sale of assets without the need for consent from creditors. All that’s required to proceed with a 363 sale is to have the approval of the bankruptcy court. 

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