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Deloitte Turnaround and Restructuring (T&R) Newsletter

Insights from developing mergers and acquisitions trends

This newsletter addresses the current state and outlook for the Deloitte T&R practice, including recent engagements, announcements, case studies, and upcoming events. Check out the latest highlights to stay on top of corporate restructuring trends and make the most of the game-changing moments.

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Views from our leaders

Tom Bibby, Managing Director

Distressed M&A: In-Court Sales vs. Out-of-Court M&A

Finding the Right Path Forward in Challenging Times

Navigating the world of distressed mergers and acquisitions (M&A) can feel daunting, especially when the stakes are high and time is of the essence. Whether you’re a business owner, investor, or advisor, understanding the key differences between in-court and out-of-court M&A transactions is key to making informed decisions and achieving the best possible outcomes.

Let’s break down the main distinctions—along with some guidance to help you understand the process.

Timing: Speed vs. Flexibility

  • In-Court Sales: These transactions, often conducted under Section 363 or a Chapter 11 plan, can move quickly thanks to court-ordered processes that discharge many liabilities. However, the timeline can still vary based on the complexity of the case and liquidity of the company.
  • Out-of-Court M&A: Typically allows for more time to conduct thorough due diligence, giving buyers and sellers a chance to get comfortable with the deal.

Public Process & Auctions: Transparency vs. Privacy

  • In-Court Sales: Frequently involve public auctions, especially for larger deals. This can help maximize value but also means more eyes and potential bidders on the process.
  • Out-of-Court M&A: May be conducted privately, with or without a formal auction, offering more discretion.

Approvals: Who Gets a Say?

  • In-Court Sales: Require approval from the Bankruptcy Court and the company’s board—no need for shareholder votes.
  • Out-of-Court M&A: Board approval is a must, and shareholder approval may also be required, depending on the structure.

Asset vs. Equity Sale: What’s Changing Hands?

  • In-Court: Almost always asset sales, allowing buyers to pick and choose what they acquire which may include executory contracts and agreements.
  • Out-of-Court: Can be asset sales, equity sales, or mergers, offering more flexibility.

Consideration: How Are Deals Funded?

  • In-Court: Typically cash or credit bids—rarely equity or debt.
  • Out-of-Court: More options, including cash, equity, or a mix (but not credit bids).

Liabilities: What’s Left Behind?

  • In-Court: Assets are sold “free and clear” of most liabilities unless specifically assumed by the buyer.
  • Out-of-Court: Buyers generally assume more liabilities as part of the transaction.

Reps & Warranties: Trust, But Verify

  • In-Court: Limited representations and warranties—assets are sold “as is.”
  • Out-of-Court: More robust reps and warranties, providing greater protection for buyers.

Indemnification: Who’s on the Hook?

  • In-Court: Indemnification is usually limited or nonexistent.
  • Out-of-Court: Substantial indemnification is common, often backed by insurance.

Successor Liability and Fraudulent Transfer Risk

  • In-Court: These risks are generally eliminated, giving buyers peace of mind.
  • Out-of-Court: Ongoing risk remains, requiring careful diligence.

Contracts & Leases: Navigating Roadblocks

  • In-Court: Anti-assignment and change-of-control provisions are generally unenforceable, making it easier to transfer contracts.
  • Out-of-Court: Must comply with these provisions, which can complicate the deal.

Stakeholder Involvement and Antitrust

  • In-Court: Other stakeholders can review and object to the terms. The antitrust waiting period is shortened to 15 days.
  • Out-of-Court: Stakeholders have less ability to participate or block the deal. The standard antitrust waiting period is 30 days.

The Bottom Line

Distressed M&A transactions are complex but understanding the differences between in-court and out-of-court processes can help you make the right choices for your unique situation. Whether you’re seeking speed, flexibility, or maximum protection, our T&R team is here to guide you every step of the way—with experience, empathy, professionalism, and a commitment toward a successful transaction.

If you have questions or want to discuss your options, don’t hesitate to reach out. We’re here to help you turn challenges into opportunities.

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