Representations & Warranties Bankruptcy Insurance

Benefits of the 363 Sale process:

• Upon completion, it ensures the Debtor has fulfilled its fiduciary duty to maximize the value of the assets for its Creditor
• The Buyer acquires the assets free and clear of liens or other claims and obtains certain other protections including a determination that the sale was in good faith
• Often, the Buyer is able to purchase the assets at a discount.

Capacity:

• Although the coverage offered in a R&W Policy for in a 363 Sale would closely resemble that of a R&W Policy for a non-bankruptcy sale, Buyers should expect potential increases in underwriting fees, premium or retention (which likely would be borne entirely by the Buyer) to address potential complications in underwriting associated with the bankruptcy process and to account for the Insurers lack of subrogation rights (similar to the Buyer’s lack of recourse in a traditional 363 Sale).

R&W Insurance In a 363 Sale:

Offering a R&W Policy in a 363 Sale would likely create certain additional benefits to the traditional 363 Sale process including:

• The Buyer would be able to seek recourse against a R&W Policy in the event of a breach of any Debtor representation or warranty that results in loss to the Buyer. In contrast, in a traditional 363 Sale, the Buyer typically is left with limited recourse, if any.
• The inclusion of such a remedy for the Buyer, likely would embolden the Buyer (and other potential bidders) resulting in better and higher bids and increased proceeds to the Creditors of the Debtor.
• The ability to seek recourse in the event of a breach and increased proceeds, may provide an opportunity for bidders to seek broader representations and warranties that they would have in a traditional 363 Sale. It should be noted that a Bankruptcy Court may view an over-expansion of representations and warranties unfavorably (as a deterrent to the sale process).