## Facts

- GSC, Inc. and affiliated debtors filed for Chapter 11 relief in the U.S. Bankruptcy Court for the Southern District of New York.
- The court appointed a Chapter 11 trustee to administer the estates and act for the benefit of creditors.
- A group of noncontrolling lenders filed a proposed Chapter 11 plan.
- Several parties opposed that plan and raised confirmation-related disputes, including: what constituted a proper class of creditors, whether a creditor’s vote should be designated, whether the lenders had standing to propose the plan, and whether required investor consents could be obtained.
- The trustee determined that litigating those plan disputes would likely be extensive and expensive, and that delay threatened further deterioration of the debtors’ business value.
- To preserve and realize value, the trustee moved for authority to sell substantially all of the debtors’ assets outside the ordinary course of business under 11 U.S.C. § 363(b).
- The noncontrolling lenders objected to the proposed sale, arguing (among other things) that it operated as an impermissible “sub rosa” plan because it would effectively decide the case’s outcome without the protections of plan confirmation.
- The sale process included market outreach and a proposed transaction structure (including a stalking-horse arrangement and bid protections) intended to attract bids and produce the best available price.

## Issues

1. Whether a Chapter 11 trustee may sell substantially all of a debtor’s assets under 11 U.S.C. § 363(b) before confirmation of any plan when a creditor group has filed a competing plan and objects to the sale.
2. Whether the trustee showed a sound business purpose for the proposed § 363 sale based on the record of marketing, timing, and the risk of value decline.
3. Whether the proposed sale should be denied as an impermissible sub rosa plan that bypasses Chapter 11 plan confirmation requirements.

## Decision

- The court granted the trustee’s motion and authorized the sale of substantially all assets under § 363(b).
- The court found that the trustee demonstrated a sound business reason for the sale and that the sale process was appropriate under the circumstances.
- The court rejected the objection that the sale was an impermissible sub rosa plan, concluding that the transaction did not improperly dictate the terms of a Chapter 11 plan or fix distributions in a way that must be decided through plan confirmation.
- The court overruled objections tied to the competing plan and declined to require the trustee to litigate plan-confirmation disputes as a condition to proceeding with a § 363 sale.

## Legal Principles

- A trustee (or debtor in possession) may sell estate property outside the ordinary course of business under 11 U.S.C. § 363(b) upon a showing of a sound business purpose, with adequate notice and court oversight.
- Under the Second Circuit’s § 363(b) framework (including In re Lionel Corp.), courts evaluate whether the proposed sale reflects reasonable business judgment supported by the record.
- A sale of substantially all assets may be approved before plan confirmation; Chapter 11 does not require that value be realized only through confirming a plan.
- A § 363 sale cannot be used to evade the plan-confirmation process by imposing the functional equivalent of a plan (a “sub rosa plan”), such as by predetermining creditor distributions or restructuring stakeholder rights in a way that belongs in a confirmed plan.
- Plan-related disputes (classification, vote designation, standing to propose a plan, and third-party consent questions) do not automatically bar a § 363 sale when the sale independently satisfies § 363(b) standards.
- Courts commonly give weight to a trustee’s judgment when the trustee is acting in good faith, after reasonable market testing, and without evidence of collusion or self-dealing.

## Conclusion

In In re GSC, Inc., the bankruptcy court approved the Chapter 11 trustee’s request to sell substantially all assets under § 363(b) despite a competing lender-proposed plan and objections that the sale would bypass plan confirmation. The court held that the trustee showed a sound business justification and that the transaction did not amount to a sub rosa plan, so the trustee could proceed with the sale to prevent further loss of value and convert the business into proceeds for later distribution through the bankruptcy process.


In re GSC, Inc., 453 B.R. 132 (2011)