Bankruptcy Law

Bankruptcy Law Questions? Ask a Bankruptcy Lawyer.

Ask a Lawyer,
Get an Answer ASAP!

Bankruptcy Law
This answer was rated:

Can Bankruptcy Judge challenge asset sale at Fair Market Val

I'm a member of an...

I'm a member of an MBO team which is negotiating the purchase of certain assets from a Delaware registered corporation operating in Atlanta, Georgia (and I think therefore under Georgia law regarding bankruptcy?). I and my colleagues are offering to purchase a list of assets including Intellectual Property Rights and have constructed an asset purchase agreement which requires the Sellers to provide clear and unencumbered title to these assets in exchange for what we consider to be a fair market value (approx. $3,500,000) but we are concerned as to the position in the event (which we think is highly likely) that the Sellers then immediately file for bankruptcy to avoid debts they have incurred in other parts of their business over which the MBO team has neither had nor has control. Is there a risk that the bankruptcy court could set aside what we consider to be a normal legitimate transaction done for fair market value as a result of the Sellers either electing or being forced into bankruptcy and how can we secure our new assets against this eventuality?

Show More
Show Less
Ask Your Own Bankruptcy Law Question
Answered in 11 hours by:
12/6/2012
Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
Satisfied Customers: 19,807
Experience: B.A.; M.B.A.; J.D.
Verified
Thank you for giving me the opportunity to assist you. Kindly use CONTINUE or REPLY button to ask for clarification or follow-up questions.


Question: I'm a member of an MBO team which is negotiating the purchase of certain assets from a Delaware registered corporation operating in Atlanta, Georgia (and I think therefore under Georgia law regarding bankruptcy?). I and my colleagues are offering to purchase a list of assets including Intellectual Property Rights and have constructed an asset purchase agreement which requires the Sellers to provide clear and unencumbered title to these assets in exchange for what we consider to be a fair market value (approx. $3,500,000) but we are concerned as to the position in the event (which we think is highly likely) that the Sellers then immediately file for bankruptcy to avoid debts they have incurred in other parts of their business over which the MBO team has neither had nor has control. Is there a risk that the bankruptcy court could set aside what we consider to be a normal legitimate transaction done for fair market value as a result of the Sellers either electing or being forced into bankruptcy and how can we secure our new assets against this eventuality?




Response: There is likelihood that bankruptcy trustee would go after this transaction as preference transaction if the company files for bankruptcy protection within 90 days of the transaction. So, the Bankruptcy Court would then put a hold on the transaction until the issue has been resolved by the Court. However, if you paid fair market value for the assets in question, then you would vigorously defend your position that this should fall under exception to the preference treatment because it is a contemporaneous exchange, etc. See 11 U.S.C. Section 547(c). You have to be certain that you infact offered fair market value for the assets and you have to have documentation as to how you arrived at the fair market value. This means that you would need the assets professionally appraised and keep copies of all the appraisals.



Debtors should refrain from filing for bankruptcy protection immediately after the deal. They should wait at least 91 days before doing so. This would take the transaction outside the preference period and make it more difficult for the bankruptcy Court to undo the sale. See 11 U.S.C Section 547.




http://doney.net/bkcode/11usc0547.htm


http://doney.net/bkcode/11usc0547.htm
Ask Your Own Bankruptcy Law Question
Customer reply replied 4 years ago

PhillipsEsq,


Many thanks for your reply which is very helpful but one thing is not clear from the detail :-


 


In the event that the Seller does either elect or get forced into Bankruptcy proceedings within 90 days of our planned transaction, can we still continue to use the assets we've purchased e.g. the software codes, the trademarks etc. or will we be forced to stop?


 

Customer reply replied 4 years ago

PhillipsEsq,


 


Thanks for your response and explanation of the position regarding preference transactions etc. however I'm unclear whether the Seller declaring bankruptcy either voluntarily or involuntarily within 90 days would mean that we'd be unable to continue to use the assets e.g. software code, trademarks etc. which we are purchasing or if we'd be forced to stop using these by the Court regardless of whether we've paid a Fair Market Value for them or not but just because they (the Court) are defining the transaction as a preference transaction? I assume that paying over independently assessed Fair Market Value would negate this risk?

Many thanks for your reply which is very helpful but one thing is not clear from the detail :-

In the event that the Seller does either elect or get forced into Bankruptcy proceedings within 90 days of our planned transaction, can we still continue to use the assets we've purchased e.g. the software codes, the trademarks etc. or will we be forced to stop?

Response 1: Yes, you can continue to use the assets you have purchased unless the Bankruptcy Court issues an Order stopping you from using the assets until any action brought by the Bankruptcy Trustee to avoid the transaction is resolved.




Thanks for your response and explanation of the position regarding preference transactions etc. however I'm unclear whether the Seller declaring bankruptcy either voluntarily or involuntarily within 90 days would mean that we'd be unable to continue to use the assets e.g. software code, trademarks etc. which we are purchasing or if we'd be forced to stop using these by the Court regardless of whether we've paid a Fair Market Value for them or not but just because they (the Court) are defining the transaction as a preference transaction?


Response 2: You can continue to use the assets you have purchased unless the Bankruptcy Court issues an Order stopping you from using the assets until any action brought by the Bankruptcy Trustee to avoid the transaction is resolved. So, continue to use the assets until the Court stops you from using them. This means that you can still use the assets while action is pending in the Bankruptcy Court regarding the assets. Unless the Bankruptcy Court issues a Temporary Restraining Order against the use of the assets, you can continue to use the assets.

I assume that paying over independently assessed Fair Market Value would negate this risk?


Response 3: No, unfortunately not and you should not do that. You should not pay more than the independently assessed Fair Market Value. Paying more than the value of the assets would not deter a Bankruptcy Trustee from pursuing the transaction under a preference action.

Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
Satisfied Customers: 19,807
Experience: B.A.; M.B.A.; J.D.
Verified
Phillips Esq. and 87 other Bankruptcy Law Specialists are ready to help you
Ask your own question now
Ask Phillips Esq. Your Own Question
Phillips Esq.
Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
Satisfied Customers: 19,807
19,807 Satisfied Customers
Experience: B.A.; M.B.A.; J.D.

Phillips Esq. is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises!

Gary B.Edmond, OK

My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer.

EricRedwood City, CA

I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight.

MichaelWichita, KS

PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent.

Three H.Houston, TX

Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!!

ElaineAtlanta, GA

It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem.

TonyApopka, FL

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

< Previous | Next >

Meet the Experts:

Terry L.

Terry L.

Attorney

2,672 satisfied customers

Better Business Bureau. 18yrs bankruptcy experience. Chicago Bar Assoc. American Bankruptcy Institute member.

cortrightlaw

cortrightlaw

Attorney

511 satisfied customers

Attorney practicing Bankruptcy Law including Chapter 7, Chapter 11, Chapter 12, and Chapter 13.

JoeLawyer

JoeLawyer

Attorney

376 satisfied customers

Attorney in the practice of Bankruptcy Law since 1996

A.J.

A.J.

Attorney

262 satisfied customers

Experienced consumer bankruptcy attorney.

Fritz

Fritz

Attorney

209 satisfied customers

Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases

Law Girl

Law Girl

Attorney

153 satisfied customers

I am an attorney.

Paul K, Esq.

Paul K, Esq.

Attorney

141 satisfied customers

10 years Exp., Great customer service, Prompt responses.

< Previous | Next >

Related Bankruptcy Law Questions
I had a hearing in bankruptcy court- does this mean I wasn't
I had a hearing in bankruptcy court- does this mean I wasn't supposed to defend myself against the one who called for the hearing?… read more
PaulmoJD
PaulmoJD
Attorney At Law
Doctoral Degree
106 satisfied customers
A few years ago I lost a house to the trustees. It went on a
A few years ago I lost a house to the trustees. It went on a short sale. Now the Franchise tax board says I Tax Board says I "earned" $184,000.00 and that I owe them $20,000.00 in taxes. Of course I r… read more
FiveStarLaw
FiveStarLaw
Attorney
Doctoral Degree
477 satisfied customers
If you have a trial scheduled and the US Trustees Office is
If you have a trial scheduled and the US Trustees Office is trying to get your case dismissed and you have been dealing with your attorney who has been doing things that will get him disbarred, how do… read more
Michael Bradley
Michael Bradley
JD
1,127 satisfied customers
I received a letter from the united states bankruptcy court
i received a letter from the united states bankruptcy court southern district of new york … read more
Barrister
Barrister
Attorney/Landlord/Realtor
Doctoral Degree
34,597 satisfied customers
I have hard evidence that the Trustee and Trustee atty were
Hello - I have hard evidence that the Trustee and Trustee atty were negligent, breached their fiduciary duties and allowed my federal case of fraud in the inducement run the SOL, without pursuing as t… read more
Dwayne B.
Dwayne B.
Juris Doctor
28,480 satisfied customers
The Trustee in a corporate bankruptcy case erased and/ or
The Trustee in a corporate bankruptcy case erased and/ or deleted tape recorded testimony of a key witness in a 2004 bankruptcy rule deposition. what recourse do I have being that witnesses testimony … read more
Legal Eagle
Legal Eagle
Attorney
Doctoral Degree
5,818 satisfied customers
Second opinion] The Trustee in a corporate bankruptcy case
Second opinion] The Trustee in a corporate bankruptcy case erased and/ or deleted tape recorded testimony of a key witness in a 2004 bankruptcy rule deposition. what recourse do I have being that witn… read more
DrakeLAW
DrakeLAW
Juris Doctorate
828 satisfied customers
My confirmation meeting is next week and th trustee wants a
my confirmation meeting is next week and th trustee wants a modified plan so i won't be confirmed, what may happen … read more
Phillips Esq.
Phillips Esq.
Attorney-at-Law
19,807 satisfied customers
I filed for Chapter 13 bankruptcy protection in April 2016
I filed for Chapter 13 bankruptcy protection in April 2016 (LA County/San Fernando Valley), got set up with a 60-month plan, and have been making plan payments since April 2016. My questions have to d… read more
socrateaser
socrateaser
1,031 satisfied customers
Bankruptcy court trial hearing Brief needed. I am a
Bankruptcy court trial hearing Brief needed. I am a Creditor, already finished a Rule 2004 exam on Debtor, out of court. I must file brief and exhibits by this Friday.… read more
PaulmoJD
PaulmoJD
Attorney At Law
Doctoral Degree
106 satisfied customers
In the Utah code you sent me it states: 75-7-501 Rights of
In the Utah code you sent me it states: 75-7-501 Rights of beneficiary's creditor or assignee. "To the extent a beneficiary's interest is not protected by a spendthrift provision or Section 25-6-14, t… read more
Phillips Esq.
Phillips Esq.
Attorney-at-Law
19,807 satisfied customers
I received notice from the Trustee of an "Order Striking
I received notice from the Trustee of an "Order Striking Filing For Failure To Comply With Required Procedures".I believe the problem is with a creditor who had an undeliverable address, however, I ha… read more
DrakeLAW
DrakeLAW
Juris Doctorate
828 satisfied customers
I had just filed chpt 13 met with trustee last Thursday I
I had just filed chpt 13 met with trustee last Thursday I got a surprise when I got home my son had paid off my home and car 359000 What do i do from here? … read more
PaulmoJD
PaulmoJD
Attorney At Law
Doctoral Degree
106 satisfied customers
I recently made my last chapter 13 payment to the trustees
I recently made my last chapter 13 payment to the trustees office. I fell behind on my mortgage and have been in a trial modification. On the notice of final cure my lender stated the amount I was del… read more
socrateaser
socrateaser
1,031 satisfied customers
Does it matter which chapter of the BK code is used when
Does it matter which chapter of the BK code is used when assessing the statute of limitations issue?… read more
Ely
Ely
Counselor at Law
Juris Doctor
266 satisfied customers
Does the trustee need a court order to sell a debtors
Does the trustee need a court order to sell a debtors primary residence? The equity is claimed as exempt, but the trustee believes there is more equity in the house than the debtor claimed. Reference … read more
Phillips Esq.
Phillips Esq.
Attorney-at-Law
19,807 satisfied customers
I live in California For bankruptcy court. What documents to
I live in California For bankruptcy court. What documents to I have to present for a valid Prenuptual agreement?… read more
DrakeLAW
DrakeLAW
Juris Doctorate
828 satisfied customers
Can the bankruptcy court put our house up for sale when we
Can the bankruptcy court put our house up for sale when we didn't complete the bankruptcy courses after court?… read more
CalAttorney2
CalAttorney2
Attorney
Doctoral Degree
8,845 satisfied customers

DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.

The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).

DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.

The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).

Show MoreShow Less

Ask Your Question

x