Sales of Not for Profit Assets after
The Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005
Written by William W. Kannel and Adrienne K. Walker 1
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. | Boston
Sales of debtors’ assets in bankruptcy proceedings are quite common, either as part of a plan of reorganization or liquidation or pursuant to Bankruptcy Code Section 363. The Bankruptcy Code and the Federal Rules of Bankruptcy Procedure provide that a sale of a debtor’s assets occurs after notice to all creditors and an opportunity for a hearing. In the case of a not for profit entity (an “NFP”), the ability of a debtor to sell its assets in a bankruptcy often overlaps with various state laws and regulations governing NFP asset sales.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the “Bankruptcy Act”) signed into law by President Bush on April 20, 2005, will have an immediate impact on sales of NFP debtor assets. While most of the recent amendments to the Bankruptcy Code will not become effective until October 17, 2005, the amendments discussed herein became effective on April 20, 2005 -- for both new and pending bankruptcy cases. As a result, the changes the Bankruptcy Act made to Bankruptcy Code Sections 363, 541, and 1129 are presently in effect and parties involved in bankruptcy cases of NFP’s should be aware of their existence and plan accordingly.
Prior to the amendments, the relationship between the bankruptcy law governing asset sales and other applicable nonbankruptcy law governing the sale of assets by NFPs was less than clear. For example, state laws and regulations often established procedures, usually enforced by a state’s attorney general, which governed the sale of NFPs' assets. Advance notice of a proposed sale might be required, including details such as the seller’s name, price for the assets, and the specific terms of the sale agreement. In addition, state law might require public...
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