Mergers & Acquisitions

WHY BUYERS ARE INCREASINGLY TURNING TO STATE LAW TO ACQUIRE DISTRESSED ASSETS

For companies and stakeholders seeking to execute distressed asset sales with speed, certainty, cost control and surgical execution, state law regimes offer non-bankruptcy alternatives to chapter 11 bankruptcy sales.[1] These state law regimes can facilitate distressed M&A transactions with significantly lower administrative costs, tighter timelines and greater process control, especially where secured creditors or other key stakeholders cooperate to drive a coordinated strategy.

One such state law mechanism, Uniform Commercial Code (UCC) Article 9 sale, implements a secured creditor’s statutory right to enforce against defaulted personal property-type collateral and dispose of it via public or private sale subject to the overarching requirement that every aspect of the disposition be “commercially reasonable.” Public sales permit credit bidding, generally require notice to only the debtor and other lienholders and allow the buyer to take assets free and clear of the foreclosing and subordinate liens. Private sales can be faster but require strong evidentiary backing (marketing, valuation) and limit credit bidding absent a recognized market for the assets.[2]

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