Section 363 Sale

The debtor files a motion with the bankruptcy court to sell assets under Section 363. Typically, the debtor first negotiates with a 'stalking horse' bidder — an initial buyer that sets a floor price and deal terms. Other parties can submit competing bids, and if there are qualifying overbids, the court conducts a live auction. After the auction, the court holds a sale hearing to approve the transaction. The entire process can be completed in 45-90 days — far faster than a traditional M&A deal or a full reorganization.

The stalking horse bidder performs diligence and negotiates a full purchase agreement, bearing significant cost and risk that they may be outbid. To compensate, stalking horses receive bid protections: a break-up fee (1-3% of purchase price) paid if they lose the auction, and expense reimbursement for diligence costs. Minimum overbid increments (e.g., $5M above the stalking horse price) ensure the auction is meaningful. These protections balance the need to attract an initial bid with the duty to maximize value for creditors.

The most powerful feature of a 363 sale is the 'free and clear' provision. The buyer acquires assets without inheriting pre-petition liabilities, including product liability claims, environmental claims, pension obligations, and collective bargaining agreements (in some cases). All liens and claims attach to the sale proceeds instead of the assets. This is a massive advantage over buying assets outside of bankruptcy, where successor liability can attach. For buyers, 363 sales offer cleaner deal execution; for creditors, the auction process is designed to maximize recovery.