Based on observations of hundreds of auctions and liquidations over the past 40 years, it appears that the best sales are those that can be advertised as a "bankruptcy" because they are generally perceived by the buying public as the failure of a company and not the failure of the assets offered. There are a variety of reasons for sales. Some are advertised as "going out of business" and "lost our lease." Others are also publicized with similar creative advertising. Most of the public realizes that this type of advertising is hype and intended to give the impression of compulsion in order to attract the buying public to the potential of an available bargain.

Sales that are true compelled sales would be those advertised as "mortgagee assignee," "foreclosure," etc. Although these words catch the public's attention, none have the same impact as the word "bankruptcy." For many years, under the old Act, the bankruptcy judge was a referee. In Dallas, for example, those types of sales were worded "subject to an order by the referee in bankruptcy for the Northern District of Texas, the following assets are to be sold at public auction." These sales were always advertised as subject to confirmation, and the sales were successful.

Today, things have changed, and this not only includes the current Bankruptcy Code but the manner in which sales are conducted. Sales can be held over the Internet and there are buyer's premiums, to name a couple of new developments. However, for better results, nothing has taken the place of a bankruptcy as a reason for the sale, regardless of the methods used. This is to say that, with some exceptions, a "bankruptcy" sale would have a better result compared to the same sale without the use of the word "bankruptcy" in its advertisement.

Without the benefit of this experience, some may wish to stay away from this term under the misguided belief of a stigma that it would detract from recovery. In fact, just the opposite is true! However, some things simply do not sell well regardless of the style of the sale. Some of the types of assets that historically have proven difficult to sell include (1) items associated with heat, such as furnaces, (2) chemical process equipment other than standard stainless steel vessels, (3) plating equipment, (4) special process or proprietary manufacturing equipment, and (5) older assets of almost any type affected by technology. Items that typically do well are standard machines in such manufacturing areas as woodworking, metal (other than forging or foundry), plastic (other than older injection molding machines) and standard plant equipment such as shelving, forklifts, power hand tools, etc.

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Semantics can play a big part in a good advertising campaign, so try to use the "bankruptcy" term for holding the sale rather than attempting to avoid it. In addition, it is typical and acceptable to advertise that a bankruptcy sale is subject to confirmation.

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There is no reason to sell assets for some preliminary low-number offer, as the best marketing scheme is the use of the word "bankruptcy" associated with a public sale. If you believe that an offer is too low, it probably is. If the offers come in very quickly after a failure, the chances are that a public sale will do better. The public sale can be conducted through a sealed-bid system, or possibly via public auction. The best way to do this is after an investigation into the relevant markets. It would be wise to turn over the decision-making process to professionals who know the best method of sale and advertising, and who have done this often enough that you can have confidence in their ability to do the best for you.

It may be interesting to look at some of the types of assets that can be volatile in the various types of sales, but can do much better in bankruptcy-type sales. This would include office furniture and equipment, breakroom areas, older calibration and inspection labs, research and development areas, and some plant furniture. Most of this type of equipment is not expected to sell for very much, so not much effort is expended on that portion of the assets. The fact is, there are times when those types of assets can pay for the general sale expenses.

Semantics can play a big part in a good advertising campaign, so try to use the "bankruptcy" term for holding the sale rather than attempting to avoid it. In addition, it is typical and acceptable to advertise that a bankruptcy sale is subject to confirmation. This is not a deterrent, but later could be if the confirmation answer was not provided immediately following the sale or if accomplished in a piecemeal way that it would eventually become a standard that buyers would not accept.

Buyers are looking for good reasons to attend these sales, and the assumed facts associated with bankruptcy are providing an opportunity for several of these to be available to the prospective attendees. Some of these are:

1. The sale is compelled, so the assets are in whatever shape they are expected to be and are not surplus the company may be unloading.
2. There is clear title and no worry for title to buyers with potential liabilities. This is especially true with the prospect of a trustee's deed on real estate. There have been sales negotiated and confirmed based on the selling tool of a trustee's deed.
3. There is always the possibility of competitors available to purchase, which would increase attendance.
4. Collusion, if attempted, can be thwarted by reminding any participants that it is a federal offense. The type of sales where this is prevalent is in textile or sewing plants.
5. Interference from the outside, such as landlord claims and those from creditors, can usually be stayed.
6. It is simply a cleaner sale, as perceived by the buying public.

Trustees and creditors who must maximize the highest results of a chapter 7 liquidation should embrace the use of the bankruptcy term as a selling tool, rather than try to avoid the stigma the word tends to infer.

Footnotes

¹ Certified in machinery & equipment and real estate by the American Society of Auctioneers. Return to article