Many of our clients are actively seeking asset purchases from distressed companies during this market dislocation. Prior to the downturn, it was difficult for buyers and sellers to get past wide bid-asks. Now, many oil and gas companies don’t have the luxury of holding out for a better commodity price environment. 

The current market environment provides a unique opportunity for buyers with cash to pick up great assets for a bargain. However, an issue for buyers is that if a seller is left insolvent after such a transaction and didn’t receive “reasonably equivalent value” the bankruptcy court could actually require an unwind of a transaction.

Here are two ways to protect against this kind of fraudulent transfer claim:

1)  Solvency Opinion

Oftentimes, buyers are requiring, as a closing condition to the transaction, for the seller to obtain a solvency opinion. This not only protects the transaction and the buyers from potential unwind down the road, but it also protects the seller, its managers and Board from potential personal liability. A solvency opinion focuses on the seller both before and after the sale transaction.

2)  Reasonably Equivalent Value (REV) Opinion

Oftentimes a solvency opinion on a distressed seller isn’t feasible. The seller could already be insolvent. However, it’s possible that an asset sale, especially a deleveraging transaction, would still be in the best interest of a company and its creditors. If a company receives REV for the assets, they have an affirmative defense against a fraudulent transfer claim. Unlike a solvency opinion, a REV opinion focuses on the value of assets being sold. Sometimes sellers get both a solvency opinion and a REV opinion (i.e.,  “belt and suspenders”).