Advertising Section 363 Sales in the Digital Age

There are plenty of court opinions finding that a trustee's ad in the legal notices section of a local newspaper satisfied the advertising requirements for a §363 sale under the circumstances of the case. There are statutes requiring newspaper publication at a minimum in some circumstances. See, e.g., 28 U.S.C. §2002 (Notice of sale of realty).

Court Scrutiny of the Marketing and Sale Process

While a host of opinions have found that satisfying the statutory minimum is sufficient to find that the marketing and sale process was appropriate, a counter-set of opinions has found that, under the circumstances of the case, newspaper notice alone was inadequate. For example, a completed sale process that may have satisfied state law requirements may not be sufficient for a §363 sale. See, In re BCC Sandusky Permanent LLC, 2017 WL 2470864 (Bankr. N.D. Ohio June 7, 2017). BCC Sandusky involved a debtor who owned a shopping center in Sandusky, OH, known as Crossings of Sandusky. Prior to bankruptcy, a foreclosure case was filed in federal court and a receiver appointed to manage and sell the property. The receiver's sole method of advertising the foreclosure sale was publication in the local newspaper. The debtor filed its Chapter 11 bankruptcy petition on the eve of the foreclosure sale, halting it. The debtor's principals contended that they filed the petition to protect substantial equity in the property that would not have been realized in a foreclosure auction advertised only in the local newspaper. The U.S. Trustee and the debtor's lender, the Bank of New York Mellon Trust Company, filed motions to dismiss the bankruptcy case, arguing that it had been filed in bad faith.

The bankruptcy court sided with the debtor and denied the motions to dismiss. The court noted that, while the receiver's newspaper notice met the minimum statutory notice requirements, the receiver's "public sale procedures fall short of notice and procedures designed to effect a sale that maximizes the value of the Property even at a forced sale and protects the rights of any party other than Lender." The court was persuaded by the debtor's expert witness, who testified that "the type of buyer that would most likely be interested in the Property … would be institutional real estate investment trusts and large private funds." Further, the expert testified that a listing in the local newspaper was unlikely to reach such buyers, but if listed with an experienced real estate broker with national reach, "the Property would have maximum exposure to over 15,000 investors and 2,000 agents nationwide." The court noted that "the sale set in motion by the Receiver is not designed to attract bidders besides the Lender and to maximize value of the Property even under distressed conditions." The court concluded it was appropriate for the debtors to file a Chapter 11 case and use the procedures available under § 363 to "[maximize] exposure and value of the Property while still protecting the interests of all parties."

The lesson of BCC Sandusky is that just satisfying the minimum requirements for a sale under non-bankruptcy law will not always pass muster with the bankruptcy court, where the goal is to attract the highest and best bid.

A further cautionary tale: Sometimes the issue is not the process, but the parties.

Even a robust advertising campaign does not guaranty the success of a §363 sale. In In re Flour City Bagels, LLC, 557 B.R. 53 (Bankr. W.D.N.Y. 2016), the debtor was the largest franchisee of Bruegger's Bagel Bakeries in the United States. Prior to the bankruptcy filing, the debtor defaulted to its junior secured lender, Canal, which exercised its contractual rights to assume control of the LLC that was the debtor's sole managing member. Before Canal put the debtor into bankruptcy, it engaged in an extensive campaign to sell the assets of the debtor as a going concern, and continued those efforts under §363 after filing the bankruptcy petition. Canal's efforts included contacting the top 200 restaurant franchisees in the country, identifying other potential buyers from their database, issuing press releases to 1,400 different magazines, publications, and websites, and sending a teaser fact sheet to 300 other strategic and financial prospective purchasers identified through industry research. Their efforts resulted in 4 bids, the highest of which was about half of the projected range of $12 million. Three of the participants left before the auction concluded, leaving only one, Le Duff. Canal also submitted a bid, pursuant to an agreement with the senior secured lender enabling it to credit bid the senior position. The debtor declared Canal the winner with its bid of $5 million, consisting of $1.3 million cash and $3.7 as a credit bid. It beat out Le Duff's bid of $4.75 million cash.

The sale fell apart when the debtor sought approval in the bankruptcy court. Le Duff, the U.S. Trustee and others raised objections to the insider nature of the transaction, the validity of liens that formed the basis of Canal's credit bid, releases of claims and parties required by the proposed asset purchase agreement, the low amount of the cash component of Canal's bid, and other issues. The bankruptcy court ultimately questioned the debtor's business judgment in accepting Canal's bid, and denied the debtor's request to approve the § 363 sale to Canal.

The lesson of Flour City Bagels? Even with proof of an exhaustive national marketing push, a buyer who is arguably an insider (as Canal became when it exercised its LLC control rights) may face a heavier lift than a third party when arguing that the sale process was sufficient and its bid should be accepted as the winner. A lender should know the risks of exercising a control option under its loan documents before taking this path.

Forging Ahead: A Little Internet Advertising Can Go a Long Way

Are there circumstances in which you want to get away with just advertising in the local newspaper? Perhaps. If your client is a loan-to-own lender, or equity hoping to buy themselves back into ownership after washing out debt, you may attempt to fly just over the water and hope the court agrees that the sale process was fair enough.

In most cases, though, a higher sale price benefits everyone, whatever the ultimate business goal is for the sale, and the way to get there is to get eyes on the assets being sold. In 2020, limiting notice of a §363 sale to a tombstone placed in the legal notice section of a local newspaper can hardly be justified in lieu of a well-placed Internet ad which could reach a national audience.

Following are examples of internet resources for advertising §363 sales (note that we are not endorsing any of these specific options, but using them as examples). If you are a professional advisor, your client's knowledge of trade journals and trade-specific resources is a starting point.

Business Marketplaces

Many websites cater to buyers and sellers of businesses. For example, see, dealstream.com and bizbuysell.com.

Distressed Asset Websites

Check out websites specializing in distressed asset sales — §363 sales in particular. Examples are inforuptcy.com/marketplace and dailydac.com/opportunistic-deal-database (Disclosure: The authors of this article work in the same law firm with dailydac.com's founder and President, Jonathan Friedland).

Industry-Specific Sales

Many websites offer a marketplace for industry-specific sales. For example, see, commercialtrucktrader.com or dotmed.com (medical industry).

Industry-Specific News

Many industry news sites offer advertising opportunities, such as Plastics News (plasticsnews.com/section/classifieds).

Trade Associations

Some trade associations offer a marketplace, such as the American Dental Association (marketplace.ada.org) and the International Frozen Yogurt Association (internationalfrozenyogurt.com/ifya/ifya-classifieds).

Social Media — Targeted Advertising

The largest social media platforms offer targeted advertising. Two examples are facebook.com/business/industries and business.linkedin.com/marketing-solutions/ad-targeting.

Website Banner Ads — Targeted Advertising

You may be annoyed by those ads that pop up at the top of your Google search results, or the banner ads appearing on websites you visit. Nevertheless, consider placing one. They can be targeted by numerous factors, including keywords, demographics, geography, and so on. The most popular is ads.google.com but there are lots of other options. Ads can even be tailored to appear on specific websites of interest to your target audience.

E-Mail List Rental

Some vendors and associations rent their e-mail lists, which could be used for targeted e-mails to potential bidders (but be wary of laws regulating mass emails). For example, see, Printing Impressions (printing industry news) at piworld.com/list-rental.

The Usual Suspects

Finally, you should not ignore the websites that might have first come to mind: ebay.com and craigslist.org. They have sections devoted to business and industrial sales.

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Mark S. Melickian is a partner in the Chicago office of Sugar, Felsenthal, Grais & Helsinger LLP and chair of the firm's corporate restructuring practice. David M. Madden, also based in Chicago, is counsel to the firm and a member of its corporate restructuring and litigation practice groups.