Buyer Beware: Bankruptcy Sales Under Section 363 of the Bankruptcy Code May Be Subject to Attack

In a case that may reduce the appetite of buyers to purchase assets from Chapter 11 debtors, the United States Bankruptcy Appellate Panel for the Ninth Circuit (the BAP) held in Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC (PW)) that when assets are sold free and clear of liens pursuant to a bankruptcy court order under section 363(f), the free and clear portion of the sale order can be reversed on appeal even though the sale itself was final under section 363(m). Although the decision is as yet unpublished and a motion for reconsideration is pending, the courts holding is quite troubling. The BAP ruled that that it could review and reverse the lower courts ruling to the extent it allowed the sale to be free and clear of liens even though there was no stay of the sale pending appeal. Furthermore, the BAP seems to have limited the circumstances under which property may be sold free and clear of liens.