Indian companies looking to expand can benefit from buying distressed assets in US bankruptcies, say Tyson Lomazow, Sanjeet Malik and Bradley Scott Friedman of Milbank Tweed Hadley & McCloy
The recent economic downturn has created increased opportunities to acquire assets from distressed US companies. Judicial proceedings under chapter 11 of the US Bankruptcy Code can provide an ideal setting for a purchaser to capitalize on advantages that are not otherwise available in a sale of distressed assets, while still availing itself of attractive purchase prices.
US bankruptcy basics
Under the US Bankruptcy Code, a company that files for bankruptcy is entitled to remain in control of its affairs as a debtor-in-possession, and is afforded a unique set of tools to help generate liquidity and reorganize its businesses. One important tool is the “363 sale”, which refers to section 363(b) of the Bankruptcy Code. This permits the debtor to sell its assets “free and clear” of mortgage liens, pledges and other encumbrances that might otherwise diminish the asset’s sale value.
A 363 sale enables a debtor to maximize the value of an encumbered asset while the purchaser acquires the asset free and clear, and with additional safeguards that are available only in a US bankruptcy.
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Tyson Lomazow is a partner in Milbank’s New York office; Sanjeet Malik is a counsel in Milbank’s Singapore office; and Bradley Scott Friedman is an associate in Milbank’s New York office.
