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Profiting from the Downturn: Bankruptcy Asset Sales

BY David Lee Tayman
December 27, 2007

The recent turmoil in the financial markets has caused many businesspeople to actively seek out opportunities in undervalued or distressed assets. Buying assets out of a bankruptcy case represents one of the best ways to profit from financial distress. However, just as there is no typical bankrupt company, there is no typical asset sale in a bankruptcy case. Bankruptcy and distressed company investing, while potentially lucrative, is also complex and oftentimes contentious.

Bankrupt debtors seek to sell assets that range from entire businesses to individual pieces of equipment. Old, worn-out, or obsolete assets are as likely to be on the block as new, freshly purchased or produced materials. The range and quantity of assets sold by debtors means that opportunities abound for purchasers able to quickly and efficiently analyze the value of assets and close transactions. Spectacular tales of outrageous returns realized by so-called vulture investors abound. Less often told are the stories of would-be vultures spending significant time and money chasing deals that end up going nowhere. While it is true that the assets of bankrupt companies can often be purchased for literally pennies on the dollar, the bankruptcy asset purchase process can be challenging and the legal aspects of bankruptcy asset sales place severe demands on any would-be vulture.

Section 363

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