Debtors May Benefit from ' 363 Protections Post-Confirmation

A Case in Point

Capmark's sale of its remaining Low-Income Housing Tax Credit Business is a recent example of the approval of a sale of assets under ' 363 of the Bankruptcy Code following the confirmation of a debtor's plan. Capmark, following confirmation of its plan, obtained a typical ' 363 sale order. Analogous to sale orders customarily entered prior to confirmation of a debtor's plan, the sale order with respect to Capmark's remaining Low-Income Housing Tax Credit Business authorized the sale free and clear of interests pursuant to ' 363(f), contained ' 363(m) good-faith findings and ' 363(n) collusion findings, and enjoined creditors from asserting against the purchaser claims held against Capmark. See Capmark Low-Income Housing Tax Credit Sale Order, In re Capmark Financial Group, Inc., 09-13684, (Bankr. D. Del. Sept. 23, 2011) [D.I. 3783].

Background

After filing for bankruptcy protection in October 2009, Capmark, like many large corporate debtors, began to systematically sell off its business platforms. While Capmark proceeded with a series of sales, it was simultaneously negotiating the resolution of the largest claims against its estates and related inter-creditor disputes. Following the approval of agreements stipulating the allowed amount of material claims against Capmark, it filed its proposed Chapter 11 Plan and Disclosure Statement. See Capmark Disclosure Statement [D.I. 3226], Arts. III.F., V.E and V.F.

After approval of Capmark's Disclosure Statement and the commencement of solicitation with respect to Capmark's Plan, the company filed its motion to approve the sale of its remaining Low-Income Housing Tax Credit Business. See Capmark Low-Income Housing Tax Credit Sale Motion [D.I. 3406]. The bidding procedures order with respect to the sale was entered on Aug. 19, 2011, the same day as the confirmation hearing with respect to Capmark's Plan. The confirmation order was subsequently entered on Aug. 24, 2011. See Capmark Low-Income Housing Tax Credit Bidding Procedures Order [D.I. 3540] and Capmark Confirmation Order [D.I. 3568]. The related sale order was entered on Sept. 23, 2011, one week prior to the Sept. 30, 2011 effective date of Capmark's Plan. See Capmark Sale Order and Notice of Entry of Confirmation Order and Occurrence of Effective Date of Capmark Plan [D.I. 3577].

To retain jurisdiction to approve the sale under ' 363 following the confirmation of Capmark's Plan, the Bankruptcy Court expressly retained jurisdiction to approve such sale under ' 363 in the bidding procedures order with respect to the sale and in the order confirming Capmark's Plan. Capmark also amended its Plan to preserve the Bankruptcy Court's jurisdiction to enter the sale order. The Bidding Procedures Order as entered provided:

The Court shall retain jurisdiction to interpret, construe, and enforce the provisions of the Sale Agreement, this Order and all other items relating to the Sale, including jurisdiction over all matters arising under the Debtors' Chapter 11 cases regarding the Sale of all the Sale Assets, including, without limitation, any future sales of the Subsequent Sale Assets pursuant to the terms of the Sale Agreement, notwithstanding that the entire Sale or some portion thereof will be consummated after confirmation and/or effectiveness of the Debtors' Chapter 11 plan. To the extent any Subsequent Sale Assets are sold as contemplated by, and resulting from, the Sale Agreement, the Court shall retain jurisdiction to authorize and approve such sales pursuant to sections 363 and 365 of the Bankruptcy Code, including granting any of the relief provided by this Sale Order with respect to such sale or sales of the Subsequent Sale Assets. Capmark Bidding Procedures Order ' 11.

Section 11.2 of Capmark's Plan provided:

Without any limitation of the foregoing matters set forth in Section 11.1, the Bankruptcy Court shall expressly retain jurisdiction with respect to all matters arising under and related to the Bear Creek Sale Motion, including jurisdiction to interpret and enforce the provisions of the Bear Creek Sale Agreement, the bidding procedures order approved in connection therewith, and to authorize, approve, enter, interpret and enforce any sale order or orders governing the LIHTC Business assets ultimately sold to the successful buyer, notwithstanding that the sale of all the LIHTC Business assets contemplated by the Bear Creek Sale or a portion thereof may be consummated after the Effective Date. Capmark Plan [D.I. 3568] ' 11.2.

Capmark's Confirmation Order provided:

The Bankruptcy Court shall retain jurisdiction and retain all exclusive jurisdiction it has over any matter arising under the Bankruptcy Code, arising in or related to the Chapter 11 Cases or the Plan, or that relates to any of the matters listed in Sections 11.1 and 11.2 of the Plan. Without any limitation of the foregoing matters, the Court expressly retains jurisdiction with respect to all matters arising from and related to the Bear Creek Sale Motion, including jurisdiction to interpret and enforce the provisions of the Bear Creek Sale Agreement, the bidding procedures order approved in connection therewith, and to authorize, approve, enter, interpret and enforce a future sale order governing the LIHTC Business assets ultimately sold to the successful buyer, notwithstanding that the sale of all the LIHTC Business assets contemplated by the Bear Creek Sale or a portion thereof may be consummated after the Effective Date. Capmark Confirmation Order ' 53.

Precedent

The Capmark court was not the first to enter a ' 363 sale order following the confirmation of a debtor's plan; other courts have entered such orders or authorized Chapter 11 plans that contemplate such orders. Calpine Corporation is a notable example. Like Capmark, the order confirming Calpine's Plan specifically referenced sales that would span the pre- and post-confirmation period, and retained jurisdiction with respect to such sales. See Calpine Confirmation Order, In re Calpine Corporation, 05-60200, (Bankr. S.D.N.Y. Dec. 19, 2007) [D.I. 7256] ” 92, 93. Calpine, however, also mentioned the possibility of future sales in its Disclosure Statement (see Calpine Disclosure Statement [D.I. 6140] Art. III.D(1)(d)) and included a broader retention of jurisdiction provision in its Plan than Capmark did. The Calpine Plan provided:

To the extent the Debtors or Reorganized Debtors, as applicable, sell any of their property prior to or including the date that is one year after Confirmation, the Debtors or Reorganized Debtors, as applicable, may elect to sell such property pursuant to sections 363, 1123, and 1146(a) of the Bankruptcy Code. Calpine Plan Art. IV.K.

The Calpine Plan also provided:

Notwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date, the Bankruptcy Court shall retain exclusive jurisdiction over all matters arising out of, or related to, the Chapter 11 Cases and the Plan pursuant to sections 105(a) and 1142 of the Bankruptcy Code, including jurisdiction to ' Enter and enforce any order for the sale of property pursuant to sections 363, 1123, or 1146(a) of the Bankruptcy Code. Calpine Plan Art. XII.

Calpine also gives us a clear example of the entry of a ' 363 sale order following the effective date of a Chapter 11 plan. With respect to the sale of Calpine's partially completed power plant in Alexander City, AL, though the bidding procedures order was entered prior to the effectiveness of Calpine's Plan, the sale order was entered after Calpine's Plan went effective. See Calpine Alexander City Sale Order [D.I. 7575].

Conclusion

Capmark reminds us that bankruptcy courts have approved asset sales under ' 363 of the Bankruptcy Code, affording the protections of that section to debtors and purchasers, following the confirmation of a debtor's Chapter 11 plan. If a debtor foresees the possibility of such a sale, the debtor should include plan provisions whereby the bankruptcy court specifically retains jurisdiction to approve the sale under ' 363 following confirmation, specifically referencing the assets to be sold in the plan and disclosure statement.

Lisa M. Schweitzer is a partner in the New York office of Cleary Gottlieb Steen & Hamilton LLP. She can be reached at [email protected]. James A. Croft is an associate at the firm. He can be reached at [email protected].

Large corporate Chapter 11 debtors often realize value by divesting assets under ' 363 of the Bankruptcy Code as part of their development and negotiation of a Chapter 11 plan pursuant to which the proceeds of such sales will be distributed. When a debtor's ability to propose a plan of reorganization outpaces its sale efforts, there may be pressure to confirm the plan before the asset sales are completed. In such circumstances, bankruptcy courts have preserved the debtor's ability to dispose of assets pursuant to ' 363 of the Bankruptcy Code following confirmation and even the effectiveness of a Chapter 11 plan.

It is easy to understand why debtors and purchasers would want to preserve the estate's ability to sell assets pursuant to ' 363 following confirmation of a Chapter 11 plan. Section 363 offers numerous benefits that are attractive to debtors and purchasers. Under ' 363(f), assets can be sold free and clear of interests ' presumably including interests existing as of the date of the order approving the sale or the closing of the sale. Appeals of orders authorizing the good-faith sale of property may be mooted under ' 363(m). And the time required to complete a sale pursuant to ' 363 could be significantly shorter than the time required to solicit a plan, which otherwise could be required if the assets to be sold are material to plan recoveries. In some instances, the debtor may even be able to obtain an injunction prohibiting creditors from pursuing claims related to the assets against the purchaser.

Bankruptcy courts that have approved asset sales under ' 363 of the Bankruptcy Code following the intervening confirmation of a debtor's plan have specifically retained jurisdiction to approve such sales, often by express reference to a pending sale motion, in documents including the debtor's plan, the confirmation order with respect to such plan and the bidding procedures order with respect to such sale. Debtors have also stated in disclosure statements the fact that they may seek approval of a sale under ' 363 of the Bankruptcy Code following confirmation of a plan.

A Case in Point

Capmark's sale of its remaining Low-Income Housing Tax Credit Business is a recent example of the approval of a sale of assets under ' 363 of the Bankruptcy Code following the confirmation of a debtor's plan. Capmark, following confirmation of its plan, obtained a typical ' 363 sale order. Analogous to sale orders customarily entered prior to confirmation of a debtor's plan, the sale order with respect to Capmark's remaining Low-Income Housing Tax Credit Business authorized the sale free and clear of interests pursuant to ' 363(f), contained ' 363(m) good-faith findings and ' 363(n) collusion findings, and enjoined creditors from asserting against the purchaser claims held against Capmark. See Capmark Low-Income Housing Tax Credit Sale Order, In re Capmark Financial Group, Inc., 09-13684, (Bankr. D. Del. Sept. 23, 2011) [D.I. 3783].

Background

After filing for bankruptcy protection in October 2009, Capmark, like many large corporate debtors, began to systematically sell off its business platforms. While Capmark proceeded with a series of sales, it was simultaneously negotiating the resolution of the largest claims against its estates and related inter-creditor disputes. Following the approval of agreements stipulating the allowed amount of material claims against Capmark, it filed its proposed Chapter 11 Plan and Disclosure Statement. See Capmark Disclosure Statement [D.I. 3226], Arts. III.F., V.E and V.F.

After approval of Capmark's Disclosure Statement and the commencement of solicitation with respect to Capmark's Plan, the company filed its motion to approve the sale of its remaining Low-Income Housing Tax Credit Business. See Capmark Low-Income Housing Tax Credit Sale Motion [D.I. 3406]. The bidding procedures order with respect to the sale was entered on Aug. 19, 2011, the same day as the confirmation hearing with respect to Capmark's Plan. The confirmation order was subsequently entered on Aug. 24, 2011. See Capmark Low-Income Housing Tax Credit Bidding Procedures Order [D.I. 3540] and Capmark Confirmation Order [D.I. 3568]. The related sale order was entered on Sept. 23, 2011, one week prior to the Sept. 30, 2011 effective date of Capmark's Plan. See Capmark Sale Order and Notice of Entry of Confirmation Order and Occurrence of Effective Date of Capmark Plan [D.I. 3577].

To retain jurisdiction to approve the sale under ' 363 following the confirmation of Capmark's Plan, the Bankruptcy Court expressly retained jurisdiction to approve such sale under ' 363 in the bidding procedures order with respect to the sale and in the order confirming Capmark's Plan. Capmark also amended its Plan to preserve the Bankruptcy Court's jurisdiction to enter the sale order. The Bidding Procedures Order as entered provided:

The Court shall retain jurisdiction to interpret, construe, and enforce the provisions of the Sale Agreement, this Order and all other items relating to the Sale, including jurisdiction over all matters arising under the Debtors' Chapter 11 cases regarding the Sale of all the Sale Assets, including, without limitation, any future sales of the Subsequent Sale Assets pursuant to the terms of the Sale Agreement, notwithstanding that the entire Sale or some portion thereof will be consummated after confirmation and/or effectiveness of the Debtors' Chapter 11 plan. To the extent any Subsequent Sale Assets are sold as contemplated by, and resulting from, the Sale Agreement, the Court shall retain jurisdiction to authorize and approve such sales pursuant to sections 363 and 365 of the Bankruptcy Code, including granting any of the relief provided by this Sale Order with respect to such sale or sales of the Subsequent Sale Assets. Capmark Bidding Procedures Order ' 11.

Section 11.2 of Capmark's Plan provided:

Without any limitation of the foregoing matters set forth in Section 11.1, the Bankruptcy Court shall expressly retain jurisdiction with respect to all matters arising under and related to the Bear Creek Sale Motion, including jurisdiction to interpret and enforce the provisions of the Bear Creek Sale Agreement, the bidding procedures order approved in connection therewith, and to authorize, approve, enter, interpret and enforce any sale order or orders governing the LIHTC Business assets ultimately sold to the successful buyer, notwithstanding that the sale of all the LIHTC Business assets contemplated by the Bear Creek Sale or a portion thereof may be consummated after the Effective Date. Capmark Plan [D.I. 3568] ' 11.2.

Capmark's Confirmation Order provided:

The Bankruptcy Court shall retain jurisdiction and retain all exclusive jurisdiction it has over any matter arising under the Bankruptcy Code, arising in or related to the Chapter 11 Cases or the Plan, or that relates to any of the matters listed in Sections 11.1 and 11.2 of the Plan. Without any limitation of the foregoing matters, the Court expressly retains jurisdiction with respect to all matters arising from and related to the Bear Creek Sale Motion, including jurisdiction to interpret and enforce the provisions of the Bear Creek Sale Agreement, the bidding procedures order approved in connection therewith, and to authorize, approve, enter, interpret and enforce a future sale order governing the LIHTC Business assets ultimately sold to the successful buyer, notwithstanding that the sale of all the LIHTC Business assets contemplated by the Bear Creek Sale or a portion thereof may be consummated after the Effective Date. Capmark Confirmation Order ' 53.

Precedent

The Capmark court was not the first to enter a ' 363 sale order following the confirmation of a debtor's plan; other courts have entered such orders or authorized Chapter 11 plans that contemplate such orders. Calpine Corporation is a notable example. Like Capmark, the order confirming Calpine's Plan specifically referenced sales that would span the pre- and post-confirmation period, and retained jurisdiction with respect to such sales. See Calpine Confirmation Order, In re Calpine Corporation, 05-60200, (Bankr. S.D.N.Y. Dec. 19, 2007) [D.I. 7256] ” 92, 93. Calpine, however, also mentioned the possibility of future sales in its Disclosure Statement (see Calpine Disclosure Statement [D.I. 6140] Art. III.D(1)(d)) and included a broader retention of jurisdiction provision in its Plan than Capmark did. The Calpine Plan provided:

To the extent the Debtors or Reorganized Debtors, as applicable, sell any of their property prior to or including the date that is one year after Confirmation, the Debtors or Reorganized Debtors, as applicable, may elect to sell such property pursuant to sections 363, 1123, and 1146(a) of the Bankruptcy Code. Calpine Plan Art. IV.K.

The Calpine Plan also provided:

Notwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date, the Bankruptcy Court shall retain exclusive jurisdiction over all matters arising out of, or related to, the Chapter 11 Cases and the Plan pursuant to sections 105(a) and 1142 of the Bankruptcy Code, including jurisdiction to ' Enter and enforce any order for the sale of property pursuant to sections 363, 1123, or 1146(a) of the Bankruptcy Code. Calpine Plan Art. XII.

Calpine also gives us a clear example of the entry of a ' 363 sale order following the effective date of a Chapter 11 plan. With respect to the sale of Calpine's partially completed power plant in Alexander City, AL, though the bidding procedures order was entered prior to the effectiveness of Calpine's Plan, the sale order was entered after Calpine's Plan went effective. See Calpine Alexander City Sale Order [D.I. 7575].

Conclusion

Capmark reminds us that bankruptcy courts have approved asset sales under ' 363 of the Bankruptcy Code, affording the protections of that section to debtors and purchasers, following the confirmation of a debtor's Chapter 11 plan. If a debtor foresees the possibility of such a sale, the debtor should include plan provisions whereby the bankruptcy court specifically retains jurisdiction to approve the sale under ' 363 following confirmation, specifically referencing the assets to be sold in the plan and disclosure statement.

Lisa M. Schweitzer is a partner in the New York office of Cleary Gottlieb Steen & Hamilton LLP. She can be reached at [email protected]. James A. Croft is an associate at the firm. He can be reached at [email protected].