As businesses in pandemic-struck industries like hospitality, transportation and retail seek financial remedy in the new year, Bass, Berry & Sims attorney Tatjana Paterno authored an article for ValueWalk offering insight on the opportunity for investors to buy distressed businesses at bargain prices and how these transactions differ from traditional deals.
Many distressed transactions are structured as “Section 363 sales” under the U.S. Bankruptcy Code wherein a bankruptcy court must approve the sale and parties must follow a specific process. Section 363 presents distinct advantages for buyers, such as allowing buyers to purchase assets free and clear of creditor and successor liability claims. Investors buying a business outside of the bankruptcy process would not enjoy these protections, and further, a creditor may be able to invalidate a transaction or successfully allege a fraudulent conveyance if an insolvent company was purchased outside the bankruptcy process.
Another difference in distressed transactions is the number of parties involved, as deals involve negotiating with business owners as well as creditors, landlords, vendors, customers, employees and bankruptcy trustees. Section 363 sales also must be cleared with the bankruptcy court and will typically entail extra provisions to account for the unique nature of these deals.
“As investors continue to prepare for the anticipated increase in distressed opportunities, they must understand the key differences between traditional and distressed transactions,” Tatjana said. “Understanding these differences will help investors to avoid unpleasant surprises, anticipate potential issues and ultimately achieve better results.”
The full article, “What you Need to Know When Buying a Distressed Business,” was published by ValueWalk on December 16 and is available online.