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

Section 363(f) allows a debtor to sell assets free and clear of liens and claims, with such interests attaching to the sale proceeds instead of the transferred property, shielding buyers from successor liability.

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

A stalking horse bid is a pre-negotiated agreement with an initial bidder that establishes a floor price and deal terms, incentivizing higher competing bids at auction while guaranteeing the debtor a minimum sale value.

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

Credit bidding allows a secured creditor to bid the outstanding amount of its secured claim rather than cash, up to the full face value of its lien, as provided under Section 363(k) of the Bankruptcy Code.

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

Break-up fees in Section 363 sales are typically 1% to 3% of the purchase price, designed to compensate the stalking horse for due diligence risk while not chilling competitive bidding.

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

A 363 sale can typically be completed in 30-90 days versus 12-18 months for a plan of reorganization, and provides free and clear title—critical in time-sensitive turnarounds where going-concern value erodes rapidly.

CTP - Certified Turnaround Professional Practice Test

CTP - Certified Turnaround Professional Practice Test

CTP Sale Processes & M&A in Distressed Situations