Recent headlines regarding the sale of the Chicago Cubs ("Cubs") have discussed the Cubs’ use of federal bankruptcy law to shield its buyer from the creditors of the Cubs’ parent company, Tribune Company ("Tribune"). While the bankruptcy court had previously approved the sale of the Cubs as an asset of the Tribune Company, fears that Tribune’s creditors may attempt to collect their claims from the new owners necessitated the Cubs’ filing for bankruptcy protection for itself. The Cubs stay in bankruptcy was short as the entire matter was resolved in two days.
Employing a procedure called a Section 363 sale, a bankruptcy court may authorize a sale of some, all, or substantially all of a corporate debtor’s assets. The purchased assets are conveyed to the buyer free and clear of any liens or encumbrances. Any such liens or encumbrances which would have otherwise attached to the purchased assets instead attach to the net proceeds of the sale and payment to the creditors is subject to further order of the bankruptcy court. In the Cubs’ case, a new entity was formed and all of the Cubs’ assets were transferred to the newly-created entity.
The short time frame of the Cubs’ case occurred because a substantial amount of the ground work for the sale took place as a part of the Tribune’s bankruptcy case. The bankruptcy court did not need to allow for an extended time for potential bidders because it concluded that the high publicity of the sale was sufficient notice to the Tribune’s creditors and any other interested parties. Additionally, the prior approval by Major League Baseball and the Official Committee of Unsecured Creditors demonstrated to the court that the sale was in the best interest of the Cubs, the Tribune Company and their creditors and that there was no reason for delay.
Many of our clients encounter bankruptcy-related issues from the perspective of a creditor. A creditor’s ability to collect can vary widely from case to case, but in all cases is limited by a court-ordered filing deadline known as a claims bar date. If you receive notice of a bankruptcy by a customer, vendor or other person or business who owes you money, you should immediately contact a member of the firm.
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