In re Lionel Corporation

In In re Lionel Corporation, 722 F.2d 1063 (2d Cir.1983), the Second Circuit discussed the circumstances under which a bankruptcy judge can authorize, prior to the acceptance of and outside any plan of reorganization under Chapter 11, the sale of an important asset of the debtor's estate, outside the ordinary course of business. After studying the statute's predecessors, the legislative history surrounding the enactment of current Chapter 11 in 1978, and the statute's underlying logic, the Second Circuit concluded "that there must be some articulated business justification ... for using, selling, or leasing property out of the ordinary course of business before the bankruptcy judge may order such disposition under 11 U.S.C. section 363(b)." Id. at 1070. Accordingly, the court adopted a rule requiring that the bankruptcy judge "expressly find from the evidence presented before him at the hearing a good business reason to grant such an application." Id. at 1071. Finally, the Second Circuit attempted to provide some guidance for the bankruptcy courts by stating: In fashioning its findings, a bankruptcy judge must not blindly follow the hue and cry of the most vocal special interest groups; rather, he should consider all salient factors pertaining to the proceeding and, accordingly, act to further the diverse interests of the debtor, creditors and equity holders, alike. He might, for example, look to such relevant factors as the proportionate value of the asset to the estate as a whole, the amount of elapsed time since the filing, the likelihood that a plan of reorganization will be proposed and confirmed in the near future, the effect of the proposed disposition on future plans of reorganization, the proceeds to be obtained from the disposition vis-a-vis any appraisals of the property, which of the alternatives of use, sale or lease the proposal envisions and, most importantly perhaps, whether the asset is increasing or decreasing in value. This list is not intended to be exclusive, but merely to provide guidance to the bankruptcy judge. Id.