Bankruptcy Court Permits 363(f) Sale of Business Free of Pension Claim

Introduction

A pension plan unsuccessfully tried to stop a company from selling a business to a buyer in a 363(f) (3) sale free and clear of the seller’s pension fund liability.

The deal

The seller was engaged in environmental and industrial services. The areas of service included industrial cleaning, environmental cleaning and remediation, and transporting hazardous and non-hazardous waste products and byproducts. The company had been in business since the 1970s, primarily in Michigan but also in Ohio, Wisconsin, and Illinois.

The seller was a party to a long standing collective agreement that required it to contribute to a multiemployer union pension fund.

In early 2018, after more than four decades of operations, the seller determined that the business required either refinancing or an infusion of substantial capital from an outside source. However, the seller found that a major obstacle to obtaining funding was the potential for a large liability to the pension fund for withdrawal liability. As a result, the efforts of the seller to obtain refinancing or an infusion of capital were unsuccessful.

The lawsuit

Therefore, the seller filed for bankruptcy and asked the bankruptcy court to approve a sale of the business assets under Bankruptcy Code section 363(f)(3) to a buyer free and clear of the seller’s $3.4 million pension fund claim. The pension fund objected to the sale of the business assets free and clear of the union claim; arguing that the seller had yet to withdraw from the plan and the business assets can’t be sold under section 363(f)(3) free and clear of a contingent liability.

The bankruptcy court rejected the union fund’s objections claiming that 363(f)3) permits the court to approve the sale of seller’s assets free of the union claims even if contingent.

This case is referred to In re: K & D Industrial Services Holding Co., Inc., et al., Chapter 11Jointly Administered Case No. 19-43823, United States Bankruptcy Court, E.D. Michigan, Southern Division, (May 16, 2019)

Comment

The pension fund not only unsuccessfully questioned the buyer’s 363(f) right to buy the seller’s assets free and clear of a pension fund liability that was contingent. It also wanted to preserve its right to sue the buyer for the pension claim under a successor liability or alter ego theory after the closing if the circumstances warranted.

The bankruptcy court said no: “This misses the point of § 363(f). The point of the statute is not to determine who would win or lose a successor or alter ego fight some time in the future. The point of the statute is to permit a purchaser” like Buyer “to purchase assets from a bankruptcy estate free of the risk that it will be forced into such a fight in the future.”

By John McCauley: I help companies and their lawyers minimize legal risk associated with small U.S. business mergers and acquisitions (transaction value less than $50 million).

Email:             jmccauley@mk-law.com

Profile:            http://www.martindale.com/John-B-McCauley/176725-lawyer.htm

Telephone:      714 273-6291

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Posted in 363(f)(3) sale, asset purchase agreement, bankruptcy sale, distressed business acquisitions, federal multiemployer pension plan withdrawal liability, successor liability Tagged with: , , , , ,

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