>Like many industries, the video game industry has seen a rise in Chapter 11 bankruptcy filings. Large corporate bankruptcy cases can be complicated and intimidating affairs, but for the savvy investor (or the savvy competitor), they can present tremendous opportunities. Traditionally, companies filed Chapter 11 to restructure their debt and emerge from bankruptcy as a more efficient going concern. It is becoming more common, however, for companies to file bankruptcy and quickly sell some or all of their assets and liquidate the remainder. These transactions are commonly referred to a “363 sales” (named after the applicable Bankruptcy Code section). Such sales can involve any asset of a bankrupt company, including intellectual property rights, and a prospective buyer has an opportunity to acquire a desired asset at a discounted price. However, because of the particularities of the bankruptcy proceeedings, there are some choppy waters that a prospective buyer needs to successfully navigate.
An asset sale in bankruptcy is usually conducted pursuant to procedures approved by the bankruptcy court and often involves a public bid solicitation process and an auction. The court-approved bid procedures may dictate matters such as the minimum required bid and the bid increment amounts. Bidding procedures may also provide certain protections to the party that performed the due diligence associated with determining the initial bid amount, referred to as the “stalking horse bidder.” As seen in the extreme examples of the Lehman Brothers and Chrysler bankruptcy cases, asset sales sometimes take place very shortly after a bankruptcy case is filed, but in most cases, more notice is provided. Potential bidders should monitor a bankruptcy case closely to ensure that they are aware of bidding deadlines and other procedural requirements associated with the sale. The failure to comply with these procedures, or to meet these deadlines, may result in a lost opportunity to purchase valuable assets of a bankrupt competitor.
Purchasing these assets can have several benefits. In addition to acquiring assets at what may be bargain prices, the bankruptcy court order approving the sale usually results in conveyance of the assets free and clear of liens, claims, or any other type of encumbrances. In other words, with an appropriate bankruptcy court order, purchasers can rest assured that they will truly take ownership of the assets and that no other party will have a valid claim against the assets.