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Chapter 11: Limiting Debtor's Business Judgment Under 363 and for Transactions Outside the Ordinary Course

Articulated Business Justification; Totality of the Circumstances; Conflicts With Section 503

Recording of a 90-minute CLE video webinar with Q&A

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Conducted on Wednesday, February 23, 2022

Recorded event now available

or call 1-800-926-7926

This CLE webinar will discuss the standard for approval of transactions outside the ordinary course of business of the Chapter 11 debtor, often under 11 USC 362 and 365, and how and why the debtor's "business judgment" is often more limited than might seem. The panel will review how courts have articulated the "business judgment rule" in bankruptcy, whose business judgment counts, the totality of the circumstances approach, and differences between the rules as stated and as actually applied in practice.


Transactions outside the ordinary course of business are the lifeblood of Chapter 11. The trustee or debtor-in-possession wishing to sell assets, assume or reject leases, and engage in other transactions must convince the bankruptcy court that the transaction is in the debtor's best interests and its estate--not specific creditors or other constituencies. A consensus developed almost 40 years ago that such transactions would be approved if supported by an articulated business justification.

That justification has always been fluid. The initial question is whether the judge decides that issue independently or defers to the debtor's "articulated business purpose" or "business judgment" and what that means. Different courts define the same standard differently. When applying a rule, what courts say they do and what they do are sometimes different.

Further complicating the analysis, when parties attempt to include in sale contracts, bidding terms, or restructuring agreements fees and expenses that look like Section 503 administrative claims, many courts are subjecting the terms to a substantial contribution test. Rules that permit deference only to decisions by bona fide independent directors or management invite scrutiny of that independence.

Listen as this experienced panel of bankruptcy lawyers discusses the limitations on a debtor's business judgment in Chapter 11.



  1. History of the business judgment rule under Sections 363 and 365
  2. Exceptions to business judgment rule of decision
  3. How the inclusion of Section 503 fees in orders or agreements affects analysis
  4. Strategies for leveraging ambiguities in the standard
  5. Additional issues considered when transactions involve insiders and affiliates


The panel will review these and other key issues:

  • What exactly is the business judgment rule in bankruptcy?
  • Do courts apply state law business judgment tests?
  • Does ambiguity in the standards offer leverage points to stakeholders?


Leggett, Jaime
Jaime Leggett

Bast Amron

Mr. Leggett practices in the areas of bankruptcy and complex commercial litigation. His experience includes...  |  Read More

Oswald, Frank
Frank A. Oswald

Togut Segal & Segal

For more than 30 years, Mr. Oswald has focused his practice exclusively on bankruptcy, out-of-court restructurings and...  |  Read More

Quick, Dana
Dana R. Quick

Bast Amron

Ms. Quick practices in the area of insolvency and commercial litigation. Her experience includes prosecuting director...  |  Read More

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