IWIRC eNewsletter March 2016 | Page 8

IWIRC Represents at UNCITRAL

US Case Study: In re ICL Holding Co. Paves the Way for Approval of Section 363 Sales and Payments to Unsecured Creditors Without Regard for the Bankruptcy Code’s Priority Scheme

Felice Yudkin, Cole Schotz P.C., and Rebecca Hollander, Cole Schotz P.C.

Section 363 of the Bankruptcy Code permits a debtor to sell substantially all of its assets outside of a plan of reorganization. “Sale cases” have become more prevalent in recent years and courts have increasingly relaxed the standards under which 363 sales are approved. The United States Court of Appeals for the Third Circuit recently issued an opinion in In re ICL Holding Co., Inc., 802 F.3d 547 (3d Cir. 2015) that provides yet another path for debtors and secured creditors to utilize the Section 363 sale process to cleanse assets while enhancing the possibility that unsecured creditors may get a return on account of their claims in an otherwise hopeless situation.

In ICL Holding, the Third Circuit held that an asset purchaser’s payments into segregated accounts for the benefit of general unsecured creditors and professionals, made in connection with the purchase of all of the debtor’s assets, are not property of the estate or available for distribution to creditors. The court upheld the bankruptcy court’s prior orders that permitted unsecured creditors to receive a recovery and provided for the professionals to be paid in full despite the fact that a $24 million administrative claim went unpaid.

This decision paves the way for buyers to selectively apportion payments to certain creditors while avoiding the strictures of the Bankruptcy Code’s congressionally sanctioned distribution process. It has immense ramifications for Section 363 sales within the Third Circuit as it gives parties the imprimatur to fashion creative sales arrangements to efficiently reorganize distressed assets while liberating them from the traditional burdens of the heavily-regulated bankruptcy process.

IWIRC Chair, Beth Hansen (left), and UNCITRAL Committee Director, Carren Shulman (right) represented IWIRC at the UNCITRAL meeting in Vienna, Austria in December.

Rebecca Hollander

Felice Yudkin