Chapter 8 - § 8.7 SALE OF ASSETS|USE OF CASH COLLATERAL

• Jurisdiction: Colorado

§ 8.7 SALE OF ASSETS/USE OF CASH COLLATERAL

It has become the norm in the past 10 years that rather than attempt to reorganize, a debtor that owns real estate will seek to sell its property free and clear of all liens and use the proceeds to pay off liens in order of their priority. While mechanics' liens that are senior in priority will be satisfied by such a sale, an undersecured or potentially undersecured mechanics' lienholder must be vigilant in protecting its interest.

Bankruptcy Code § 363(f) permits a debtor-in-possession or trustee to sell property free and clear of all interests outside the ordinary course of business, only if:

(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;
(2) such entity consents;
(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

So long as a valid mechanics' lien attaches to the...