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Jan 29, 2019

Wilson Cole, President of Adams, Evens, & Ross (AER) and Samantha Cole, in-house counsel for AER, sit down to discuss asset sales. The popular conception of asset sales is that a purchasing company owns everything from the company they purchased, including their debt. This is not correct. When a company does an asset sale, typically because it is going out of business, the purchasing company typically doesn’t own the purchased company’s liabilities, such as debts or litigation. Asset sales are typically the purchasing company purchasing only assets (the good stuff) and leaving liabilities (bad stuff) behind in a useless shell. Winning a judgement against a shell is pointless because it has no assets so in the end you will never collect any money. Notification/litigation that doesn’t start until after a company begins an asset sale is does not have a high success rate of debt recovery. That scenario frequently ends with the holders of debt winning judgements against a useless shell company, which again, are not really victories because no money is typically collected. Odds of debt recovery are much better when notification/litigation against the debtor company occurs prior to an asset sale. In that case, the debtor company has to notify the purchasing company of such pending litigation. How much of a difference does it make? Wilson gives the figures that AER typically collect 80% of the time if litigation has begun prior to an asset sale, but 3% of the time if litigation did not occur until after the asset sale.