The DIP must articulate a business justification for selling estate property out of the ordinary course of business. Estate property may be sold through a confirmed plan, by public auction, or by private sale. Most DIPs negotiate a sale of estate assets with a specific buyer, subject to overbidding by other parties at the court hearing on the sale.
The DIP should obtain court approval of the overbid and sale procedures before noticing the sale hearing. Not doing so may make the sale vulnerable to objections at the hearing. This can result in a delay of the hearing.
Special requirements apply to motions to establish sale procedures in the California Central District. Those rules are found in Local Bankruptcy Rule 6004-1 to 6007-1.
- A hearing on a Motion to Establish Procedures for the Sale of the Estate's Assets may be scheduled on not less than 7 days notice (without an order shortening time).
- Notice must describe the proposed bidding procedures and include a copy of the proposed purchase agreement. The notice must describe the marketing efforts undertaken.
- The notice must provide that opposition is due on or before 1 day prior to the hearing.
- The moving party must serve the motion and notice of the motion and hearing by personal delivery, messenger, telephone, fax, or email.
- A date and time for a hearing on the motion to approve the sale itself may be obtained at or prior to the hearing on the Sale Procedure Motion. The hearing must be scheduled no more than 30 days following.
- If a break-up fee is requested for the purchaser, evidence must show:
- The fee is likely to enhance the ultimate sale price; and,
- The fee is reasonable.
If the seller has been contacted by parties who may overbid, the Motion for Order Authorizing Sale must be set for hearing pursuant to LBR 9013-1(a).
The moving party must submit a declaration establishing the value of the property and that the terms and conditions of the proposed sale, including the price and all contingencies, are in the best interest of the estate. A memorandum of points and authorities need not necessarily be filed.
The Notice of Hearing must include a description of the property and the terms and conditions of the proposed sale. This includes price and all contingencies. The Notice of Hearing must declare that the sale is or is not free of all liens, claims, or interests, and describe those liens, claims, or interests. It must also state that the seller is accepting higher bids. The Notice must include a description of the commission to be paid, the identity of the broker, and possible tax consequences to the estate.
Don't forget to use Form 6004-2.NOTICE.SALE, which must be completed and submitted to the clerk at the time of filing for purposes of publication by the clerk on the court's website.
Court approved conditions on the sale usually cover:
- The length of time the property is marketed;
- Access to inspect or conduct due diligence;
- Deadline for receiving offers;
- Required form of offer and deposits;
- Deadline for objecting; and
- The minimum initial and later overbid increments.