Purchasing distressed assets has become a niche industry in recent years. Whether you are looking at distressed assets as a strategic investment to enter a new market or you are trolling distressed assets in the hope of finding that hidden gem that can be turned around and sold at a profit, a potential purchaser must be aware of all the potential pitfalls and benefits of purchasing distressed assets before venturing down this path.
Section 363 of Chapter 11 of Title 11 (the Bankruptcy Code), among other benefits, allows a debtor or trustee to sell substantially all assets free and clear of all liens, claims, and encumbrances. While this is typically a main driver for purchasers of distressed assets, Chapter 11 is not the only available means to accomplish such a sale, although it is clearly the safest and least likely avenue for attack when undertaking the purchase of distressed assets. Let’s take a look at the key advantages and potential disadvantages for the purchase of distressed assets both in a section 363 sale and the available alternatives to such a sale.