Controlled Private Short Sale using UCC Article 9: a Winning Alternative to Bankruptcy Sale

Louis Cionci, ABVAs a business sale advisor with Exit Strategies Group, I help business owners obtain the best price and terms available in the market during a sale process.

We sometimes encounter situations where the owner would like to sell the business, but the business is in a distressed position with the following characteristics:

  • the fair market value of a business is less than the outstanding debt on the business,
  • the business cash flow does not support the current debt service
  • the asset value of the business is less than the debt owed on the business.

When a business is in a distressed position, there are few attractive exit options for an owner. Typical options include bankruptcy reorganization or liquidation. However, for a distressed but otherwise viable business, there is another exit option available that often produces a better financial outcome for the seller. That sale option is a UCC Article 9 Controlled Private Party Short Sale.

In this type of a sale, the business is sold to a single purchaser of the business with the intention of continuing to operate the business and the first position creditor agrees to accept the sale proceeds as satisfaction of their debt.

Winning Outcomes for the Exiting Owner

This structured sale process creates several winning outcomes for the exiting owner:

  1. A successful exit option for the owner when there was none
  2. Avoidance of bankruptcy
  3. Avoid taking on additional expensive debt
  4. Preserve the business and employee jobs the owner created
  5. Earn from the new company through an employment agreement
  6. The ability to resolve personal guarantees on subordinated creditor debt
  7. The structured sale process can be completed in 45-60 days

My goal is always to obtain the best exit strategy possible for my business owner clients. For company owners facing financial distress, this type of structured sale may offer the best exit option.

For more information on the Article 9 short sale process, or buying or selling a business, Email Louis Cionci at LCionci@exitstrategiesgroup.com or call 707-781-8582.