Cosi restaurant parent company seeks buyer

How does the Section 363 Bankruptcy Sale Process Work?

Cosi, a popular Boston-based café with locations across the US, Costa Rica and the United Arab Emirates has recently filed for Chapter 11 bankruptcy relief after closing 29 of their most under-performing locations. After being delisted from the Nasdaq stock market, Cosi is seeking buyers for their currently held assets.

As part of their restructuring efforts, Cosi will be selling its’ assets through what’s known as a section 363 bankruptcy sale.  This type of sale is only available to debtors who have filed for Chapter 11 bankruptcy protection.

Why Choose a Section 363 Bankruptcy Sale?

The section 363 sales process provides a few key benefits to debtors that make it truly worthwhile to file for Chapter 11 bankruptcy protection.  Section 363 sales allow debtors to convert assets to cash through a competitive bidding process, while providing clean title to purchasers.  This enables debtors to get closer to market value for their assets in a short amount of time.

The Basics of a Section 363 Bankruptcy Sale

Section 363 sales are, as you probably guessed, pretty structured.  They start with the identification of a proposed purchaser whose bid will set the minimum floor of the purchase price and will set forth the terms of the transaction. The initial bid is called the “stalking-horse” bid. This, like all subsequent bids, is subject to higher or better offers received by the trustee.  The bid and the terms will be set forth in a formal asset purchase agreement (APA) and the proposed purchaser will be required to wire a deposit, usually 5% – 10% of the bid, to a designated account.

After the APA is signed, all parties will file a motion for two hearings. The first is to seek approval for the proposed bid procedures to be used at auction and to schedule deadlines for competing bids and any objections to the sale.  Things to be settled during this first hearing include:

  • Date, time and location of the public auction
  • Amount and process for providing good-faith deposits
  • Information required to qualify as a “qualified bidder”
  • The amount of the “initial overbid” that must be provided that will be considered higher than the stalking-horse bid.

The second hearing occurs after the auction, where the seller submits the winning bid and seeks approval of the sale and entry of a “sale order.”

As is the case with all bankruptcy proceedings, any sale or action involving assets must be preceded by adequate notice to all parties-in-interest to the case. Interested parties may include:

  • Secured lenders
  • Government agencies
  • Parties to contracts that may be sold or assigned to the purchaser
  • Any committees formed in bankruptcy case
  • Any person expressing an interest in the properties.

The auction is typically held in the office of the debtor’s attorney. Each bidder will have the opportunity to ask questions before the formal auction, which is transcribed by a court reporter.

Once the bidding is concluded, the second hearing is held where the debtor or bankruptcy trustee present to the bankruptcy judge the process that was undertaken to ensure a valid auction.

Need Help?

If your business is struggling financially, there are ways to make things easier on yourself. The experienced bankruptcy attorneys at Hanson & Payne can review your situation and provide you with options for moving forward. Contact us today or call (414) 271-4550 for a consultation.