The court held that a chapter 11 bankruptcy business can sell its assets to a buyer under Bankruptcy Code section 363(f) free of $4.8 million union pension withdrawal liability
M&A Stories
July 19, 2022
Introduction:
Selling a financially troubled business burdened with heavy debt can be challenging. However, a viable solution might involve selling the business during bankruptcy proceedings.
The Deal:
A small chain of grocery stores in southern Illinois faced financial difficulties due to intense competition from large corporate rivals. By 2019, all but one store had to close, resulting in a substantial $4.8 million pension withdrawal liability for the unionized employees covered by a union pension plan.
Struggling to find buyers, the company filed for chapter 11 bankruptcy protection. Eventually, it sought court approval to sell the remaining store’s assets to a new company formed by the nephew of the seller’s owners under Bankruptcy Code section 363(f). The goal was to transfer ownership free of the $4.8 million pension liability.
Key Points:
1. The buyer, who is the nephew of the seller’s owners, had no prior involvement with the seller’s business.
2. The purchase price was determined through careful financial analysis and negotiation by the nephew.
3. After the sale, neither seller owner would have any connection to the store or receive any personal compensation.
The Lawsuit:
The pension fund objected to the sale of the store free of the pension claim. The court, however, approved the sale, free of the union claim saying that the bankruptcy law authorized it to do so.
This case is referred to as In Re Norrenberns Foods, Inc., Case No. 21-30825., United States Bankruptcy Court, S.D. Illinois, (July 8, 2022).
Comment:
There is an emerging trend among bankruptcy courts to allow the sale of bankrupt businesses’ assets without union pension liabilities, as demonstrated in this case.
By John McCauley: I write about recent legal problems of buyer and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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