Chapter II., A. The Bankruptcy Priority Scheme

• Jurisdiction: United States

A. The Bankruptcy Priority Scheme

As a preliminary matter, it is important to understand how any sales proceeds would be distributed pursuant to any sale or liquidation of the assets of a target in a proceeding. Understanding this aids in evaluating what groups might support, or oppose, a 363 sale. Under the Bankruptcy Code, when an asset or assets are sold, the sales proceeds are generally distributed as follows:

• Costs of Sale. To the reasonable and necessary costs of sale (such as commissions, brokerage fees, etc.).¹¹
• Secured Creditors. To the extent that a creditor has a valid and perfected secured lien on the asset, that creditor would be entitled to the next distribution of proceeds up to the amount of their lien.¹²
• Administrative/Priority Claims. After creditors with liens

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