Defending the Current State of Section 363 Sales

Abstract

Notwithstanding the intense controversy following the Chrysler and GM § 363(b) sales, value is, appropriately, the central dispute dominating debates on asset sales. Given the growing number of arguments and data purporting to show that sales harm junior creditors, I confront two issues in this article. First, I address the depth and breadth of the low-value phenomenon for junior creditors, concluding that (a) although sales appear to cut deeply into creditor recoveries, causation has yet to be shown; and (b) sales have not, contrary to the predictions and rhetoric of some scholars, overtaken reorganization. Second, I challenge four explanations of the low-value phenomenon: weak capital markets, secured creditor control, managerial and financial advisor conflicts of interest, and judicial corruption and forum shopping. I conclude that none of these explanations is satisfactory in light of junior creditor powers and the protective procedures that have evolved under § 363. This conclusion stands even in Delaware, which is the forum of choice for most large § 363 cases. In sum, I believe that the current state of asset sales is worth defending.