Section 363 Sale Order Enjoining Successor Liability Claims Not Subject to Subsequent Attack by State Agencies

By: Charles A. Dale III, David A. Mawhinney

Bankruptcy Courts in the United States are now well-recognized as a marketplace for the purchase and sale of distressed businesses. “Section 363 sales” in particular, named for the Bankruptcy Code section that authorizes such transactions, enable purchasers to acquire a financially troubled business “free and clear” of a wide range of fixed and contingent debts, including potential claims based on successor and product liability theories. In a noteworthy decision on December 1, 2014, the United States District Court for the Southern District of New York reinforced the authority of a bankruptcy court to interpret the scope of its prior sale orders under Section 363, and to enforce those orders against creditors that violate them, even against governmental agencies that may otherwise be protected from scrutiny under non-bankruptcy law. This decision sends a reassuring message to strategic and financial investors who are considering the acquisition of a troubled company through a bankruptcy court process.

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