Reason 2: Business Bankruptcy allows the company to control the sale of its assets rather than aggressive lenders.
Maintaining Control of Assets
Business Bankruptcy allows the company to control the sale of its assets rather than aggressive lenders. Often, the company’s cash flow (EBITDA) is negative and management sees no opportunity to make it positive, due the loss of sales or otherwise. In this case, secured lenders will be seeking to sell the assets of the company through a foreclosure process. Often, this foreclosure process involves a credit bid by the lender at a less-than-publicized auction (courthouse steps?). The lender is not motivated to bid true value and obtains title of the undervalued assets (See Acquiring Assets from Bankruptcy Estates) at a song. Therefore, maintaining control of the sale of its assets is critical.
Chapter 11 provides a solution. Management can file a Chapter 11, stop the foreclosure process, and maintain control of the sale process pursuant to 11 U.S.C. § 363. Management can ensure that the sale is properly advertised, stalking horse bidders located and bid procedures established to ensure a maximum sale price.