Consider the following situation that recently occurred. A holding company set up for the purpose of acquiring real property enters into a contract to purchase a commercial building. The contract provides for a closing date. The purchaser is unable to close by the date set forth in the contract and adjourns the closing date. Other adjournments take place until the Seller ultimately fixes a law date. The purchaser, desperate to avoid losing the down payment and the property thereafter pays the seller money to obtain more time. At some point the seller has had enough and refuses to further extend the closing date. What is the buyer’s option to salvage the deal?
In this case the buyer filed for bankruptcy and took advantage of a provision of the bankruptcy code that ensured a further extension of time for the purchaser to perform. Under the bankruptcy code, if applicable non-bankruptcy law, or an order entered in a non-bankruptcy proceeding, or an agreement fixes a period within which the debtor may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform similar act, and such period has not expired before the date of the filing of the petition, the trustee [includes a chapter 11 debtor] may only file, cure or perform, as the case may be, before the later of the end of such period, including any suspension of such period occurring on or after the commencement of the case or 60 days after the order for relief.
In the case cited the purchaser was able to close within the 60 day cure period. The contract was salvaged, the down payment was not lost and the purchaser took title to a multi-million dollar property. Had the purchaser’s attorney not known of this section of the bankruptcy code the property would have been lost. In this case the decision to file was pretty clear because the filing entity was not an operating company. If the company had been operating and wanted to cure a contract there would have been many considerations of the pros and cons of filing a bankruptcy petition which would have placed the entire business under the scrutiny of the court and creditors. The takeaway is that (i) bankruptcy should be considered as an option when faced with loss of contract rights and (ii) a knowledgeable bankruptcy professional should be consulted at the earliest possible time to assess the situation and available options