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KickerFeaturesSectionsNewsLJN NewslettersThe Bankruptcy Strategist

Selling 'Free and Clear': Will It Continue?

BY Jack L. Smith
January 01, 2004

Section 363(f) of the Bankruptcy Code provides an extraordinary tool to trustees and debtors in possession — the ability to sell property “free and clear.” This unique power, unavailable to a seller outside bankruptcy, not only facilitates the tasks of liquidation or reorganization, but it may even be the critical incentive for entering bankruptcy in the first place. It has now become the principal focus of many Chapter 11 cases.

Section 363 Sales in Chapter 11

Sales of estate assets under 11 U.S.C. ' 363 have always been the primary working tool of Chapter 7 trustees, whose straightforward mission is to sell assets and distribute the proceeds. The sale of assets under Section 363 in Chapter 11 cases, however, has taken longer to win widespread acceptance as a standard part of the reorganization process. The alternative to Section 363 sales in Chapter 11 is the sale of assets as part of a Chapter 11 plan, as recognized by 11 U.S.C. '' 1123(a)(5)(D) (a plan shall “provide adequate means for the plan's implementation, such as … sale of all or any part of the property of the estate, either subject to or free of any lien”) and 1141(c) (“after confirmation of a plan, the property dealt with by the plan is free and clear of all claims and interests of creditors”).

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