Business Bankruptcy Reorganization in Light of B.A.P.C.P.A

Abstract

Representing the most comprehensive set of bankruptcy reforms in more than 25 years, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 became effective on Oct 17 2005. Though the primary focus of the Act is to discourage abusive consumer bankruptcy filings, BAPCPA adds numerous provisions that subject a corporate debtor to an enhanced financially and operationally constrained environment. The decision to reorganize is largely based on the expectation that the plan would get approved within the court approved deadline. The proposed onerous financial and operational limitations that a corporate debtor would be subjected to in a bankruptcy proceeding add to the woes of companies seeking reorganization. The paper compares the old regime with the new rules and proposes that BAPCPA may drive some debtors to prepare the company for sale rather than reorganize as a going concern. There are different structures that a debtor may use to prepare a company for distressed sale. A Section 363(b) sale is typically faster to close and ensures smooth post-transaction business integration between the purchaser and acquired assets. Section 363 sale places less financial and operational burden on debtor's resources as the transaction does not require the blessing of debtor's creditors and other interested parties. On the other hand, sale consummated under a Chapter 11 reorganization plan may not be a plausible option in complex bankruptcy cases following the enhanced limitations introduced by BAPCPA. The paper further suggests that Section 363 offers substantial advantages over other transactions and may become the structure of choice for a bankruptcy sale. Thus we may expect an explosion in §363 sale in coming future.