On January 28, 2013, Eurofresh, Inc. appeared before the U.S. Bankruptcy Court in Arizona and pushed for an expedited section 363 sale. Importantly, a section 363 sale under the Bankruptcy Code occurs when the debtor seeks to sell substantially all of its assets. This type of asset sale is often the path a debtor elects when they want “opt out” of the process for obtaining a Chapter 11 plan of reorganization in favor of what is often perceived as a quicker and more efficient process. A section 363 sale may also be a sign that the debtor’s estate cannot afford the administrative expense of a prolonged reorganization.
In the Eurofresh bankruptcy case, the debtor intends to sell substantially all of its assets “free and clear of any liens or other interests” under section 363(f). Section 363 will also allow Eurofresh to assign any favorable unexpired leases and executory contracts to the buyer. This adds value to the purchase and effectuate, at least in part, the purpose of a Chapter 11 proceeding without the debtor actually complying with all of the Chapter 11 reorganization requirements. This is not always a successful move… Ample case-law exists where courts have refused to approve a 363 sale because the transaction appeared to be a back-door reorganization effort that significantly restructured the rights of the creditors. When a court denies a 363 sale the debtor is forced to continue to satisfy all of the Chapter 11 requirements.
Right now, it appears that Nature Sweet is going to be the stalking horse bidder, which means they will set the price for the purchase of Eurofresh’s assets. This does not guarantee that the stalking horse bidder will win or that the terms of the sale are not objectionable to the creditors. These are all issues that will need to be addressed.
One such issue will be the payment of all PACA trust claims. At this time the Court is entertaining a motion to set up a procedure for handling PACA claims, but a proposed PACA claims procedure order has not been filed. A proper order will be critical to both the success of the section 363 sale and the debtor’s proper use of its cash collateral. As usual, a PACA claims bar date will be set and notice will be issued.