Notes on 11 U.S.C. § 363 : US Code - Notes

Search Notes on 11 U.S.C. § 363 : US Code - Notes

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2572; Pub. L. 98-353, title
III, Sec. 442, July 10, 1984, 98 Stat. 371; Pub. L. 99-554, title
II, Sec. 257(k), Oct. 27, 1986, 100 Stat. 3115; Pub. L. 103-394,
title I, Sec. 109, title II, Secs. 214(b), 219(c), title V, Sec.
501(d)(8), Oct. 22, 1994, 108 Stat. 4113, 4126, 4129, 4144; Pub. L.
109-8, title II, Secs. 204, 231(a), title XII, Sec. 1221(a), Apr.
20, 2005, 119 Stat. 49, 72, 195.)
HISTORICAL AND REVISION NOTES
LEGISLATIVE STATEMENTS
Section 363(a) of the House amendment defines "cash collateral"
as defined in the Senate amendment. The broader definition of "soft
collateral" contained in H.R. 8200 as passed by the House is
deleted to remove limitations that were placed on the use, lease,
or sale of inventory, accounts, contract rights, general
intangibles, and chattel paper by the trustee or debtor in
possession.
Section 363(c)(2) of the House amendment is derived from the
Senate amendment. Similarly, sections 363(c)(3) and (4) are derived
from comparable provisions in the Senate amendment in lieu of the
contrary procedure contained in section 363(c) as passed by the
House. The policy of the House amendment will generally require the
court to schedule a preliminary hearing in accordance with the
needs of the debtor to authorize the trustee or debtor in
possession to use, sell, or lease cash collateral. The trustee or
debtor in possession may use, sell, or lease cash collateral in the
ordinary course of business only "after notice and a hearing."
Section 363(f) of the House amendment adopts an identical
provision contained in the House bill, as opposed to an alternative
provision contained in the Senate amendment.
Section 363(h) of the House amendment adopts a new paragraph (4)
representing a compromise between the House bill and Senate
amendment. The provision adds a limitation indicating that a
trustee or debtor in possession sell jointly owned property only if
the property is not used in the production, transmission, or
distribution for sale, of electric energy or of natural or
synthetic gas for heat, light, or power. This limitation is
intended to protect public utilities from being deprived of power
sources because of the bankruptcy of a joint owner.
Section 363(k) of the House amendment is derived from the third
sentence of section 363(e) of the Senate amendment. The provision
indicates that a secured creditor may bid in the full amount of the
creditor's allowed claim, including the secured portion and any
unsecured portion thereof in the event the creditor is
undersecured, with respect to property that is subject to a lien
that secures the allowed claim of the sale of the property.
SENATE REPORT NO. 95-989
This section defines the right and powers of the trustee with
respect to the use, sale or lease of property and the rights of
other parties that have interests in the property involved. It
applies in both liquidation and reorganization cases.
Subsection (a) defines "cash collateral" as cash, negotiable
instruments, documents of title, securities, deposit accounts, or
other cash equivalents in which the estate and an entity other than
the estate have an interest, such as a lien or a co-ownership
interest. The definition is not restricted to property of the
estate that is cash collateral on the date of the filing of the
petition. Thus, if "non-cash" collateral is disposed of and the
proceeds come within the definition of "cash collateral" as set
forth in this subsection, the proceeds would be cash collateral as
long as they remain subject to the original lien on the "non-cash"
collateral under section 552(b). To illustrate, rents received from
real property before or after the commencement of the case would be
cash collateral to the extent that they are subject to a lien.
Subsection (b) permits the trustees to use, sell, or lease, other
than in the ordinary course of business, property of the estate
upon notice and opportunity for objections and hearing thereon.
Subsection (c) governs use, sale, or lease in the ordinary course
of business. If the business of the debtor is authorized to be
operated under Sec. 721, 1108, or 1304 of the bankruptcy code, then
the trustee may use, sell, or lease property in the ordinary course
of business or enter into ordinary course transactions without need
for notice and hearing. This power is subject to several
limitations. First, the court may restrict the trustee's powers in
the order authorizing operation of the business. Second, with
respect to cash collateral, the trustee may not use, sell, or lease
cash collateral except upon court authorization after notice and a
hearing, or with the consent of each entity that has an interest in
such cash collateral. The same preliminary hearing procedure in the
automatic stay section applies to a hearing under this subsection.
In addition, the trustee is required to segregate and account for
any cash collateral in the trustee's possession, custody, or
control.
Under subsections (d) and (e), the use, sale, or lease of
property is further limited by the concept of adequate protection.
Sale, use, or lease of property in which an entity other than the
estate has an interest may be effected only to the extent not
inconsistent with any relief from the stay granted to that
interest's holder. Moreover, the court may prohibit or condition
the use, sale, or lease as is necessary to provide adequate
protection of that interest. Again, the trustee has the burden of
proof on the issue of adequate protection. Subsection (e) also
provides that where a sale of the property is proposed, an entity
that has an interest in such property may bid at the sale thereof
and set off against the purchase price up to the amount of such
entity's claim. No prior valuation under section 506(a) would limit
this bidding right, since the bid at the sale would be
determinative of value.
Subsection (f) permits sale of property free and clear of any
interest in the property of an entity other than the estate. The
trustee may sell free and clear if applicable nonbankruptcy law
permits it, if the other entity consents, if the interest is a lien
and the sale price of the property is greater than the amount
secured by the lien, if the interest is in bona fide dispute, or if
the other entity could be compelled to accept a money satisfaction
of the interest in a legal or equitable proceeding. Sale under this
subsection is subject to the adequate protection requirement. Most
often, adequate protection in connection with a sale free and clear
of other interests will be to have those interests attach to the
proceeds of the sale.
At a sale free and clear of other interests, any holder of any
interest in the property being sold will be permitted to bid. If
that holder is the high bidder, he will be permitted to offset the
value of his interest against the purchase price of the property.
Thus, in the most common situation, a holder of a lien on property
being sold may bid at the sale and, if successful, may offset the
amount owed to him that is secured by the lien on the property (but
may not offset other amounts owed to him) against the purchase
price, and be liable to the trustee for the balance of the sale
price, if any.
Subsection (g) permits the trustee to sell free and clear of any
vested or contingent right in the nature of dower or curtesy.
Subsection (h) permits sale of a co-owner's interest in property
in which the debtor had an undivided ownership interest such as a
joint tenancy, a tenancy in common, or a tenancy by the entirety.
Such a sale is permissible only if partition is impracticable, if
sale of the estate's interest would realize significantly less for
the estate that sale of the property free of the interests of the
co-owners, and if the benefit to the estate of such a sale
outweighs any detriment to the co-owners. This subsection does not
apply to a co-owner's interest in a public utility when a
disruption of the utilities services could result.
Subsection (i) provides protections for co-owners and spouses
with dower, curtesy, or community property rights. It gives a right
of first refusal to the co-owner or spouse at the price at which
the sale is to be consummated.
Subsection (j) requires the trustee to distribute to the spouse
or co-owner the appropriate portion of the proceeds of the sale,
less certain administrative expenses.
Subsection (k) [enacted as (l)] permits the trustee to use, sell,
or lease property notwithstanding certain bankruptcy or ipso facto
clauses that terminate the debtor's interest in the property or
that work a forfeiture or modification of that interest. This
subsection is not as broad as the anti-ipso facto provision in
proposed 11 U.S.C. 541(c)(1).
Subsection (l) [enacted as (m)] protects good faith purchasers of
property sold under this section from a reversal on appeal of the
sale authorization, unless the authorization for the sale and the
sale itself were stayed pending appeal. The purchaser's knowledge
of the appeal is irrelevant to the issue of good faith.
Subsection (m) [enacted as (n)] is directed at collusive bidding
on property sold under this section. It permits the trustee to void
a sale if the price of the sale was controlled by an agreement
among potential bidders. The trustees may also recover the excess
of the value of the property over the purchase price, and may
recover any costs, attorney's fees, or expenses incurred in voiding
the sale or recovering the difference. In addition, the court is
authorized to grant judgment in favor of the estate and against the
collusive bidder if the agreement controlling the sale price was
entered into in willful disregard of this subsection. The
subsection does not specify the precise measure of damages, but
simply provides for punitive damages, to be fixed in light of the
circumstances.
REFERENCES IN TEXT
Section 7A of the Clayton Act, referred to in subsec. (b)(2), is
classified to section 18a of Title 15, Commerce and Trade.
The Truth in Lending Act, referred to in subsec. (o), is title I
of Pub. L. 90-321, May 29, 1968, 82 Stat. 146, as amended, which is
classified generally to subchapter I (Sec. 1601 et seq.) of chapter
41 of Title 15, Commerce and Trade. For complete classification of
this Act to the Code, see Short Title note set out under section
1601 of Title 15 and Tables.
AMENDMENTS
2005 - Subsec. (b)(1). Pub. L. 109-8, Sec. 231(a), substituted ",
except that if the debtor in connection with offering a product or
a service discloses to an individual a policy prohibiting the
transfer of personally identifiable information about individuals
to persons that are not affiliated with the debtor and if such
policy is in effect on the date of the commencement of the case,
then the trustee may not sell or lease personally identifiable
information to any person unless - " and subpars. (A) and (B) for
period at end.
Subsec. (d). Pub. L. 109-8, Sec. 1221(a), substituted "only - "
and pars. (1) and (2) for "only to the extent not inconsistent with
any relief granted under section 362(c), 362(d), 362(e), or 362(f)
of this title."
Subsecs. (o), (p). Pub. L. 109-8, Sec. 204, added subsec. (o) and
redesignated former subsec. (o) as (p).
1994 - Subsec. (a). Pub. L. 103-394, Sec. 214(b), inserted "and
the fees, charges, accounts or other payments for the use or
occupancy of rooms and other public facilities in hotels, motels,
or other lodging properties" after "property".
Subsec. (b)(2). Pub. L. 103-394, Secs. 109, 501(d)(8)(A), struck
out "(15 U.S.C. 18a)" after "Clayton Act" and amended subpars. (A)
and (B) generally. Prior to amendment, subpars. (A) and (B) read as
follows:
"(A) notwithstanding subsection (a) of such section, such
notification shall be given by the trustee; and
"(B) notwithstanding subsection (b) of such section, the required
waiting period shall end on the tenth day after the date of the
receipt of such notification, unless the court, after notice and
hearing, orders otherwise."
Subsec. (c)(1). Pub. L. 103-394, Sec. 501(d)(8)(B), substituted
"1203, 1204, or 1304" for "1304, 1203, or 1204".
Subsec. (e). Pub. L. 103-394, Sec. 219(c), inserted at end "This
subsection also applies to property that is subject to any
unexpired lease of personal property (to the exclusion of such
property being subject to an order to grant relief from the stay
under section 362)."
1986 - Subsec. (c)(1). Pub. L. 99-554, Sec. 257(k)(1), inserted
reference to sections 1203 and 1204 of this title.
Subsec. (l). Pub. L. 99-554, Sec. 257(k)(2), inserted reference
to chapter 12.
1984 - Subsec. (a). Pub. L. 98-353, Sec. 442(a), inserted
"whenever acquired" after "equivalents" and "and includes the
proceeds, products, offspring, rents, or profits of property
subject to a security interest as provided in section 552(b) of
this title, whether existing before or after the commencement of a
case under this title" after "interest".
Subsec. (b). Pub. L. 98-353, Sec. 442(b), designated existing
provisions as par. (1) and added par. (2).
Subsec. (e). Pub. L. 98-353, Sec. 442(c), inserted ", with or
without a hearing," after "court" and struck out "In any hearing
under this section, the trustee has the burden of proof on the
issue of adequate protection".
Subsec. (f)(3). Pub. L. 98-353, Sec. 442(d), substituted "all
liens on such property" for "such interest".
Subsec. (h). Pub. L. 98-353, Sec. 442(e), substituted "at the
time of" for "immediately before".
Subsec. (j). Pub. L. 98-353, Sec. 442(f), substituted
"compensation" for "compenation".
Subsec. (k). Pub. L. 98-353, Sec. 442(g), substituted "unless the
court for cause orders otherwise the holder of such claim may bid
at such sale, and, if the holder" for "if the holder".
Subsec. (l). Pub. L. 98-353, Sec. 442(h), substituted "Subject to
the provisions of section 365, the trustee" for "The trustee",
"condition" for "conditions", "or the taking" for "a taking", and
"interest" for "interests".
Subsec. (n). Pub. L. 98-353, Sec. 442(i), substituted "avoid" for
"void", "avoiding" for "voiding", and "In addition to any recovery
under the preceding sentence, the court may grant judgment for
punitive damages in favor of the estate and against any such party
that entered into such an agreement in willful disregard of this
subsection" for "The court may grant judgment in favor of the
estate and against any such party that entered into such agreement
in willful disregard of this subsection for punitive damages in
addition to any recovery under the preceding sentence".
Subsec. (o). Pub. L. 98-353, Sec. 442(j), added subsec. (o).
EFFECTIVE DATE OF 2005 AMENDMENT
Pub. L. 109-8, title XII, Sec. 1221(d), Apr. 20, 2005, 119 Stat.
196, provided that: "The amendments made by this section [amending
this section and sections 541 and 1129 of this title and enacting
provisions set out as a note under this section] shall apply to a
case pending under title 11, United States Code, on the date of
enactment of this Act [Apr. 20, 2005], or filed under that title on
or after that date of enactment, except that the court shall not
confirm a plan under chapter 11 of title 11, United States Code,
without considering whether this section would substantially affect
the rights of a party in interest who first acquired rights with
respect to the debtor after the date of the filing of the petition.
The parties who may appear and be heard in a proceeding under this
section include the attorney general of the State in which the
debtor is incorporated, was formed, or does business."
Amendment by sections 204 and 231(a) of Pub. L. 109-8 effective
180 days after Apr. 20, 2005, and not applicable with respect to
cases commenced under this title before such effective date, except
as otherwise provided, see section 1501 of Pub. L. 109-8, set out
as a note under section 101 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not
applicable with respect to cases commenced under this title before
Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a
note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-554 effective 30 days after Oct. 27,
1986, but not applicable to cases commenced under this title before
that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as
a note under section 581 of Title 28, Judiciary and Judicial
Procedure.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases filed
90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,
set out as a note under section 101 of this title.
CONSTRUCTION OF SECTION 1221 OF PUB. L. 109-8
Pub. L. 109-8, title XII, Sec. 1221(e), Apr. 20, 2005, 119 Stat.
196, provided that: "Nothing in this section [see Effective Date of
2005 Amendment note above] shall be construed to require the court
in which a case under chapter 11 of title 11, United States Code,
is pending to remand or refer any proceeding, issue, or controversy
to any other court or to require the approval of any other court
for the transfer of property."