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When the sale of a bankrupt company is completed, its case is not over. But more and more companies are spinning these deal closings as bankruptcy exits. When assets are acquired out of bankruptcy, the debtor's headache doesn't end. In most cases, the debtor still has to make good on a plan to pay off the claims of its lenders, vendors and other creditors approved by a bankruptcy judge and confirmed by that very gang seeking recoveries on what they're owed. But a new cheerfulness has accompanied bankruptcy sale completions, putting a nice sheen on a proceeding that's still ongoing. Witness a recent situation involving Propex Inc., which was sold to affiliates of hedge fund Wayzata Investment Partners LLC for $82 million on March 30. Propex issued a statement saying that its bankruptcy was over. "Under the new ownership, Propex emerges from bankruptcy with a strong foundation and sufficient liquidity to aggressively expand its market leadership," the company statement said. But wait. Propex's
bankruptcy estate still exists. It has to distribute those sales
proceeds. And yes, Propex's assets will live. But they haven't been
reorganized. In other words, a company doesn't exit until its plan goes effective. And if all its assets are sold, it's not truly an exit. It's just an ending. Propex isn't an isolated incident, either. Other examples abound. Vicorp made a similar blunder when its sale to Fidelity National Financial Inc. and Newport Global Advisors closed on March 30. "As we exit from Chapter 11, we look forward to a new era of growth and financial stability," a Vicorp statement said. Fluid Routing Solutions Intermediate Holdings Corp. also claimed to have exited Chapter 11 when its $11 million sale to Sun Capital Partners Inc. closed on March 30. "With Sun Capital's DIP financing and acquisition of the fuel and hose extrusion operations, we were able to successfully emerge from our reorganization under Chapter 11," said a FRS statement. And now the press is buying into it. When Pecus ARG Holding Inc., the parent company of the Black Angus Steakhouse chain, was sold to Versa Capital Management Inc. on April 1, the daily newspaper, the Ventura County Star in California, reported that it had emerged from bankruptcy. Are we being too prudish? Maybe. But don't get us started on when companies liquidate and tout that as an exit, too. - Jamie Mason
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