Although out-of-court distressed sales allow the parties to skip the bankruptcy auction process and speed up the transaction, they also present a number of unique considerations. If the selling company will dissolve following the liquidation of its assets, it may be unable to uphold asset warranties or representations, creating what is essentially an as-is sale. Additionally, out-of-court distressed sales often require the approval of a company’s lenders and shareholders.
Out-of-court distressed asset buyers must also take measures to prevent accusations of fraudulent conveyance, in which an insolvent company transfers its assets solely to keep them from creditors. In order to avoid such complications, a buyer should work with the selling company to build a record of the value of its assets, which may include obtaining professional financial opinions on asset valuations and the company’s insolvent status.