Unique aspects of sales involving nonprofit assets in bankruptcy

Sales of a debtor’s assets, either pursuant to section 363 of the Bankruptcy Code or through a confirmed chapter 11 plan of reorganisation, have become increasingly common in recent years and are generally viewed as an efficient and effective way to monetise a debtor’s assets and, under the appropriate circumstances, to maximise the value of its estate.

When a sale process is used in a bankruptcy case of a debtor that is a not-for-profit (NFP) entity, however, there are issues other than simply maximising value for creditors that must be taken into consideration. NFP debtors can and should consider, among other things, when choosing a purchaser whether such purchaser has the ability to obtain the necessary regulatory approvals under applicable state law, the purchaser’s commitment to continuing the debtor’s charitable mission and how the public interest will be served by the sale transaction.

Similarly, a healthcare NFP such as a hospital or a long-term care facility should consider the proposed purchaser’s ability to continue providing quality care (including indigent care) to its patients or residents after the sale is consummated…

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