CTP Sale Processes & M&A in Distressed Situations 3

Question 1

In a distressed asset sale conducted outside of bankruptcy, which legal mechanism allows a secured lender to conduct a public auction of pledged personal property collateral?

Accepted Answer

UCC Article 9 disposition following the debtor's default

Answer

UCC Article 9 governs secured transactions and allows secured lenders to conduct commercially reasonable public or private dispositions of personal property collateral following a debtor's default, entirely outside of bankruptcy court.

Question 2

An 'Assignment for the Benefit of Creditors' (ABC) in a distressed context is best described as:

Accepted Answer

A state law alternative where a company assigns assets to a third-party assignee who liquidates them for creditor benefit

Answer

An ABC is a state law alternative to bankruptcy where the debtor voluntarily transfers all assets to a professional assignee who liquidates them and distributes proceeds to creditors, often faster and less expensively than a formal bankruptcy proceeding.

Question 3

In evaluating a distressed acquisition target, 'EBITDA normalization' refers to:

Accepted Answer

Adjusting reported earnings to reflect sustainable operating performance by removing one-time and non-recurring items

Answer

EBITDA normalization adjusts reported earnings to reflect true ongoing operating performance by removing distortions such as restructuring charges, litigation settlements, and non-recurring costs—critical for accurately valuing distressed businesses.

Question 4

Which of the following best describes a stalking horse bidder's primary risk in a Section 363 auction process?

Accepted Answer

The risk of being outbid at auction after investing significant time and resources in due diligence

Answer

The stalking horse bidder risks losing the deal to a higher bidder at auction after spending considerable time, money, and resources on due diligence, negotiation, and transaction preparation—hence the contractual need for break-up fee protection.

Question 5

In a Section 363 sale process, 'adequate protection' payments to secured creditors during the bankruptcy case are intended to:

Accepted Answer

Compensate secured creditors for any decline in collateral value occurring during the bankruptcy case

Answer

Adequate protection payments compensate secured creditors for diminution in their collateral value during the bankruptcy case, as required by Section 361, protecting their constitutional right against an uncompensated taking of property.

CTP - Certified Turnaround Professional Practice Test

CTP - Certified Turnaround Professional Practice Test

CTP Sale Processes & M&A in Distressed Situations 3