Explore a case involving a Section 363 bankruptcy sale where a buyer’s liability was upheld by the court despite not signing the purchase agreement. Gain insights into the legal implications of court-approved sales orders in distressed business acquisitions.
March 11, 2020
Introduction:
Purchasing a distressed business through a Bankruptcy Code Section 363 sale offers advantages like acquiring assets without the seller’s liabilities. However, this process involves unique aspects, including the need for approval from the bankruptcy court. While buyers can usually negotiate and walk away outside of bankruptcy, it’s more complex in this context.
The Case:
This case revolves around a Section 363 bankruptcy sale of a Washington D.C. restaurant, with a crucial asset being the lease. The buyer intended to renovate the restaurant in a 6-month span, risking lease default if closed for over 3 months. The buyer urged the bankruptcy court to modify the lease terms through a sales order, which the court approved.
Unexpectedly, due to concerns about the landlord’s attitude, the buyer decided against signing the asset purchase agreement.
Legal Action:
The bankruptcy trustee sued the buyer for damages, with the buyer arguing no liability due to the absence of a signed purchase agreement. However, the bankruptcy court ruled in favor of the trustee. The buyer then appealed to a Virginia federal district court, which upheld the ruling. The court emphasized that a sale order represents court approval and enforces the contract’s terms upon entry.
Conclusion:
This case (In Re Redskins Grille 1, LLC) illustrates that seeking a negotiated lease modification rather than forcing one through a sales order would have been wiser for the buyer. This approach would have allowed the buyer to walk away if the landlord didn’t agree to suitable changes.
Case Reference:
This case is referred to as In Re Redskins Grille 1, LLC, Nos. 19-cv-00633 (LMB/MSN), 18-01045-KHK, United States District Court, E.D. Virginia, Alexandria Division (February 27, 2020).
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 Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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