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buying the assets of a failing company using a statutory “private sale”.

the problem:  your client wants to buy the assets of a company that is in trouble.  the owner of the company has informed your client that the company is in default under the terms of commercial loan agreement.  the lender has sued the company and is threatening to seize its assets, all of which were pledged to secure the loan. your client is trying to negotiate with the owner of the company, but doesn’t want to buy assets that have been pledged to secure the loan.

the solution:  your client negotiates directly with the secured lender.  the secured lender forecloses on the assets of the company, and sells some or all of the assets to your client using a sale method provided for in the commercial code.  by conducting a statutory “private sale”, the lender is able to convey the assets to your client free of any lien by other creditors or junior lienholders.  in many cases your client will create a new corporation for the specific purpose of starting a new company out of the ashes of the old company.  where the assets are worth less than the amount of the debt, your client may be able to purchase them for “pennies on the dollar.” 

this technique may also be used by a business owner to restructure company debt.  most business owners will have signed a personal guaranty, however, so care must be given to ensure that the business owner does not lose valuable personal assets to a foreclosing lender.  in some cases, careful pre-workout planning can help characterize certain assets as exempt from seizure and not subject to levy in the event of a foreclosure.

note, however, that the idea of negotiating with a secured lender can be intimidating to many clients, and the concept of forcing the lender’s hand may be somewhat counter-intuitive for someone who has spent years, or decades, building up a family-owned business.  so careful care must be taken to walk the client through the process, and to fully explain to the client the dynamics of the negotiation process.

law offices of jonathan g. gabriel
16311 ventura blvd., ste 990, encino, ca 91436
tel.: (818) 906-3700 ~ fax: (818) 906-2142

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