Bankruptcy Buyout Basics

By Adam Lindheim

With more and more businesses filling for bankruptcy, bankruptcy buyouts are becoming more common, but can be problematic compared to traditional acquisitions. Most modern bankruptcy buyouts are considered 363 deals. 363 refers to a section of the bankruptcy codes, and are designed to maximize value of each of the businesses assets. These deals are not intended to follow the same procedures as chapter 7 or chapter 13, as well speeds up the processes.

If a businesses entrepreneur is aware of a business potentially filling for bankruptcy, they can work out a deal to make the buyout easier before the company files for bankruptcy. The company or individual purchasing the company can build in protections in order to insure the success of buyout. Once the seller files for bankruptcy, they can ask the judge to approve the deal and then authorize the auction of the company. The seller must still give the auction to the highest bidder, but the 363 deal insures a quick and speedy deal is done. Despite these facts Moody's Investors Service did a study that followed the largest private equity deals of the decades buyouts. They found that these deals fared much worse than in past decades. It is important to carefully study the companies that are filing for bankruptcy before an acquisition deal is finished.


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