CTP Sale Processes & M&A in Distressed Situations

Question 1

Under Section 363 of the U.S. Bankruptcy Code, which of the following best describes a 'free and clear' asset sale?

Accepted Answer

A sale where assets transfer without liens, claims, or encumbrances attaching to the property

Answer

A sale where the buyer assumes all existing seller liabilities

Answer

A sale conducted entirely outside of court supervision

Answer

A sale limited to intellectual property and intangible assets

Question 2

What is the primary purpose of a 'stalking horse' bid in a Section 363 bankruptcy auction?

Accepted Answer

To give the debtor a guaranteed buyer while establishing a floor price for competitive bidding

Answer

To allow the court to set the minimum acceptable purchase price unilaterally

Answer

To prevent secured creditors from submitting competing bids at auction

Answer

To convert secured debt into equity in the reorganized entity

Question 3

Which of the following best defines 'credit bidding' in a distressed asset sale under Section 363(k)?

Accepted Answer

A secured creditor submitting a bid using the face value of its debt rather than cash

Answer

A lender providing DIP financing to fund a competing buyer's acquisition

Answer

A buyer offering seller financing as part of the purchase consideration

Answer

A court-approved mechanism for unsecured creditors to participate in an auction

Question 4

In a distressed M&A context, what is the typical range for a stalking horse 'break-up fee' as a percentage of the purchase price?

Accepted Answer

1% to 3%

Answer

0.1% to 0.5%

Answer

5% to 10%

Answer

10% to 15%

Question 5

Which of the following is a key advantage of a Section 363 sale over a plan of reorganization for selling a distressed business?

Accepted Answer

It can be completed more quickly with assets sold free and clear of claims

Answer

It requires unanimous creditor approval providing maximum legitimacy

Answer

It always maximizes recovery equally for all creditor classes

Answer

It eliminates the need for court oversight entirely

Question 6

In a distressed M&A transaction, what does 'successor liability' primarily refer to?

Accepted Answer

The risk that an asset buyer inherits the seller's pre-existing legal liabilities

Answer

A buyer's obligation to honor the seller's employment contracts post-closing

Answer

A lender's duty to fund a completed acquisition at the agreed price

Answer

The obligation of new management to the existing shareholder base

Question 7

What is a 'going concern' sale in the context of distressed M&A?

Accepted Answer

A sale of a business as an operating entity, preserving its operations and workforce

Answer

A sale of individual assets at liquidation values to maximize creditor recovery

Answer

A sale limited to real property and fixed equipment only

Answer

A court-directed auction of intellectual property rights