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Successor Liability

By Amy Tonti and Luke A. Sizemore

An asset sale under section 363(f) of the Bankruptcy Code is becoming an increasingly popular mechanism to improve a company's financial condition as an alternative to a traditional plan of reorganization. There are substantial advantages to a 363(f) sale, the most important being that purchasers may take property of the estate “free and clear of any interest in such property.” This language unquestionably permits purchasers to take property of the estate free and clear of any liens, but whether section 363(f) contemplates other types of interests, such as successor liability claims, is more complicated. While the trend of recent case law supports an expansive reading of “interests in property,” prospective buyers at section 363(f) sales should be aware of, and protect against, the risk of potential successor liability claims.

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