Ice Cube Bonds: Allocating the Price of Process in Chapter 11 Bankruptcy.

In Chrysler's Chapter 11 bankruptcy, a finding that the debtor was losing $100 million per day justified the hurry-up sale of the company to Fiat. The assertion that a firm is a melting ice cube is frequently offered, soon after a bankruptcy filing, to justify a quick sale of the firm under § 363(b) of the Bankruptcy Code. This raises a policy question: is this speed and the attendant streamlining of process a bug or feature? Do hurry-up going-concern sales maximize value for the bankruptcy estate, or do they facilitate collusive deals among incumbent managers, senior creditors, and potential purchasers? The answer is a little bit of both. It is crucial to distinguish between sales where the court and parties have good information about the value of the company and the costs of delay, from those in which melting ice cube leverage is used to exploit information asymmetries and to lock in a favored deal. To accomplish this sorting and reduce opportunistic use of transactional leverage, we seek to allocate the increased risks of forgone process to the beneficiaries of the sale rather than to the bankruptcy estate. We propose that a reserve—the Ice Cube Bond—be set aside at the time of sale to preserve any potential disputes about valuation and priority for resolution after the sale has closed. This approach retains expedited § 363 sales as a useful way to quiet title in complex assets and maximize value, while preserving the opportunities for negotiation and adjudication contemplated by the Bankruptcy Code. [ABSTRACT FROM AUTHOR]