Article 9 Sales & Secured Creditor Remedies

Article 9 gives a secured creditor broad flexibility in how it disposes of collateral, and imposes one overriding requirement: every aspect of the disposition — method, manner, time, place and terms — must be commercially reasonable.

That standard is where these transactions are won or lost. A disposition later found not to have been commercially reasonable can reduce or eliminate the lender's deficiency claim against the borrower and its guarantors, invite claims from junior lienholders, create damages exposure, and complicate the buyer's ability to finance, resell or defend the acquisition — particularly if the buyer's good faith is challenged. The exposure often surfaces months or years after closing, when the file is cold and the record is all that remains.

CMBG builds that record while the transaction is happening. We document the valuation basis, the marketing effort, the buyer universe contacted and the responses received, the notice program, the bid procedures and the rationale for the outcome — so that the lender, the buyer and their counsel can demonstrate, later and under scrutiny, that the process was sound.

Public Article 9 sales involve broad notice, active marketing, established bid procedures and a public sale date open to qualified bidders. They are particularly effective where broad market exposure is the best evidence of value — and where the secured creditor expects to credit bid.

That last point drives more structuring decisions than any other. A secured creditor may generally purchase the collateral at a public disposition. At a private disposition it generally may not, unless the collateral is of a kind customarily sold on a recognized market or the subject of widely distributed standard price quotations — which operating-business assets almost never are. A lender or loan purchaser that intends to acquire the business through a credit bid therefore needs a properly noticed and properly run public sale.

Private Article 9 sales involve a negotiated disposition to an identified third-party purchaser. They can be appropriate where the buyer universe is genuinely limited, where confidentiality is important to preserve customer, employee or supplier relationships, or where a qualified strategic buyer has already emerged. A private sale is not a shortcut around the commercial reasonableness standard: CMBG helps establish value, conduct a market check proportionate to the circumstances, and document why the process and the price were sound.

An investor may purchase a defaulted secured loan, step into the position of the secured creditor, and then conduct a properly noticed Article 9 sale. At a public sale, the loan purchaser may credit bid some or all of the acquired debt and take the collateral through a newly formed entity. Executed properly with counsel, this can be a faster and materially less expensive route to acquiring a distressed operating business than Chapter 11.

It also draws significant scrutiny. Under UCC Section 9-615(f), if the transferee is the secured party, a person related to the secured party or a secondary obligor, and the sale proceeds are significantly below the range a complying disposition to an unrelated party would have produced, the surplus or deficiency is generally calculated using the amount that compliant unrelated-party disposition would have produced. An affiliated credit bid is therefore not self-validating: the market evidence and the process record must support the value.

This is why we insist on running a real process even where the outcome looks predetermined. Genuine outreach, documented responses and a defensible valuation are what convert a loan-to-own transaction from an arrangement into an asset the buyer can finance, sell and defend.

Companies facing an Article 9 process are often told it is something being done to them. That is not always the case. A cooperative, well-run foreclosure can preserve the operating business, protect employees and customer relationships, and produce a better result for management, guarantors and junior stakeholders than a contested enforcement action or a liquidation. It can also reduce or resolve deficiency exposure that would otherwise follow the borrower and its guarantors.

CMBG helps borrowers and their counsel evaluate the commercial implications of the lender's proposed process, the company's practical leverage and the available restructuring alternatives. Legal rights and remedies — including what the lender may or may not do — are addressed by counsel.