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22 Am. Bankr. Inst. L. Rev. 1 (2014)

handle is hein.journals/abilr22 and id is 1 raw text is: ACQUISITIONS IN BANKRUPTCY: 363 SALES VERSUS PLAN SALES AND THE EXISTENCE OF FIRE SALES ANNE M. ANDERSON & YUNG-YU MA ABSTRACT The acquisition of bankrupt firms has increasingly taken place through section 363 of the U.S. Bankruptcy Code. Some scholars are critical of 363 sales because the process weakens creditors' voting rights, takes place quickly, and has limited information disclosure compared with sales that take place in conjunction with a bankruptcy plan, i.e., plan sales. These factors potentially result in less active bidding and increased fire sales. Supporters of 363 sales contend that financial markets are sufficiently developed to accommodate such sales efficiently. Ours is the first study of which we are aware that compares 363 sales and plan sales to test these contentions empirically. Using a sample of large firms acquired in bankruptcy from 1996 to 2010, we find that 363 sales are associated with considerably lower sale prices. Further examination shows that the lower sale prices for 363 sales compared with plan sales are not due to the quick speed with which they take place, which could potentially result in less active bidding or greater information problems. Rather, the lower prices for 363 sales are associated with the reduced negotiating leverage that creditors experience in 363 sales as postulated by Elizabeth Rose in her 2006 study. We do not find systematic evidence of poor governance or restricted bidder participation in 363 sales, and while sale prices are negatively impacted by industry distress, the industry distress discount is not further exacerbated by 363 sales. Our results contribute to the understanding of bankruptcy fire sales and also have policy implications related to bankruptcy law. I. INTRODUCTION Two avenues exist for the sale of a firm as a going concern in bankruptcy-a plan sale that takes place through traditional plan confirmation and is voted on and approved by creditors,' or a 363 sale that avails of section 363 of the United States Bankruptcy Code in which the bankrupt firm sells substantially all of its assets to an acquirer. The two methods differ across dimensions of how quickly the sale occurs, information disclosure, and creditors' ability to levy meaningful objections to potential fire sales.2 As detailed in section II, several studies are Anderson and Ma are with the Perella Department of Finance at Lehigh University. Anderson is grateful to the Perella Chair for financial support. We thank Brad Scheler and seminar participants at Lehigh University for their helpful comments. See 11 U.S.C. § 1123 (2012) (Contents of plan). 2 See Elizabeth B. Rose, Chocolate, Flowers, and § 363(b): The Opportunity for Sweetheart Deals Without Chapter 11 Protections, 23 EMORY BANKR. DEV. J. 249, 262-63 (2006). 1

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