When David E. Lewis walked through the door of Progear Holdings Inc.'s Denver offices last November, he saw something that he had never seen as a Chapter 7 trustee before.

The supplier of golf clubs, particularly putters, that was doing business as Yes! Golf had just filed to liquidate in the U.S. Bankruptcy Court for the District of Colorado. Lewis was surprised to see all the necessary paperwork already completed at Progear. The company's managers were also still in their offices and cooperative -- highly unusual in a Chapter 7 case, since management generally bolts as quickly as possible.

For Lewis, who had worked as a Chapter 7 trustee at bankrupt companies such as Across Media Networks LLC, Quality Press Inc. and Metalmax LLC before the Progear appointment, it was clear the company was on a mission. Lewis found it quite a change to see a company in Chapter 7 with assets to sell and an urgency to unload them.

In the end, it took only five weeks or so from the time Lewis hired an auction house to sell Progear's assets, reaping $900,000 more than an offer the company received before its Nov. 18 bankruptcy filing. Progear even managed to close the deal before its Chinese manufacturers dumped inventory at a global trade fair where many golf retailers go to make inventory decisions for the upcoming year.

Progear, of course, was a small, relatively obscure company with an easily sold set of assets. But its story does provide an illustration of how Chapter 7 can work effectively, with the right collection of assets, talent, circumstance and attitude, in place of the better-known, more popular Chapter 11.

"There is a misconception that a company can only be properly operated and sold in Chapter 11," says David Heller, a bankruptcy partner at Latham & Watkins LLP who wasn't involved in the Progear case. "The truth of the matter is that a company can be operated in Chapter 7. Chapter 7 does not necessarily signal the immediate damage of a company."

Chapter 11 has long been favored as the bankruptcy venue for selling assets. One bankruptcy attorney who asked not to be named says one reason companies choose to liquidate in Chapter 11 is that, in Chapter 7, a trustee displaces the professionals, such as the lawyers and financial advisers. Also, if management does remain, it has to work with a new boss, without having any idea who that will be. Chapter 7 trustees are chosen by the U.S. Trustees' Office.

In general, bankruptcy professionals harbor no great fondness for Chapter 7 trustees. "Chapter 7 trustees are not widely trusted to receive top dollar, and they can take a long time to get [a deal] done," says Kenneth Klee, a partner at Los Angeles-based Klee, Tuchin, Bogdanoff & Stern LLP.

Even Lewis from the onset of the Progear case found the company's Chapter 7 effort to be an aberration since "existing management assumes, and maybe correctly sometimes, that they can do a better job at finding a buyer than a Chapter 7 trustee could."

That deep-set bias, however, has been undermined in recent years. A New York judge recently allowed a Chapter 7 trustee to run the sale of Spongetech Delivery Systems Inc.'s intellectual property. Klee remembers that a Massachusetts watch company, Waltham Watch Co., was allowed to continue operating in Chapter 7 instead of liquidating because the watches were worth more assembled than they were as an inventory of watchcases and movements.

Still, lawyers consider Chapter 11 liquidations and state court receiverships to be the fastest way to sell a company's assets while maintaining the value of the business. Chapter 11 keeps current management in power, while receiverships typically take less than a year and are relatively inexpensive. Also, because there is very little law to govern these cases in most states, receivers can do what they want and make it up as they go along, as long as the judge is willing to let them, says Jean Robertson, a bankruptcy partner at Calfee, Halter & Griswold LLP. "Chapter 7 continues to be the process of last resort because of the loss of control and the fire sale [of assets]," she explains. "[Chapter 7] realizes the least amount of value for the assets and for the creditors."

But Progear stood both of those notions on their heads. The company actually took the Chapter 7 route because to preserve the business' value it had to move fast. Lewis doesn't believe that the eventual $1.5 million sale to Plano, Texas-based Adams Golf Inc., a golf club designer and maker, would have been completed on Jan. 20 if Progear had to go through the various approvals and disclosures required under Chapter 11. And former Progear CEO Francis Ricci says the company felt that the longer it waited, the less value its brand name would command. Ricci believes that if golf consumers didn't hear about a product for six months, they would forget about it.

Even though Ricci, an accountant by training and former partner at Deloitte & Touche who had been involved with Yes! Golf since 1998, knew that a trustee would have to be brought in, he quickly took up the task of selling the company as soon as Progear's board opted for Chapter 7. "I didn't go into a funk or go get drunk or jump off a building," he says. "I was disappointed, but I didn't take time to mourn. I wanted to get the bankruptcy done."

Progear had made the decision at the end of the '90s to concentrate on making putters, but its lack of diversification made it ill equipped to compete with powerhouses such as Nike Inc., Callaway Golf Co., Ping Inc., Acushnet Co.'s Titleist and the Taylor Made Golf Co. unit of Adidas AG when the Great Recession hit. By September 2008, it had defaulted on a $1.2 million loan from Colorado State Bank and Trust NA. The company managed to pay the loan down until there was a little more than $550,000 outstanding, but then in September, it missed a payment.

Progear shut down its business on Oct. 22, after Ricci told the board that the company was out of money. Pro­gear had received a $600,000 offer from a non-U.S. suitor that Ricci and others won't name, and even though one board member was still considering providing Progear with a debtor-in-possession financing so that it could file for Chapter 11, the company began planning to proceed with a sale.

Ricci called an employee meeting and told them everyone would get paid, but that it was their last day. "It was a hard speech to give," says Ricci. "People had been there for several years and had personal relationships."

Through the rest of October and into November, Progear management and its board contemplated their options. The company all along had been trying to find more financing, to no avail. An investment bank approached Progear about helping it find debtor-in-possession financing for a Chapter 11 filing, but Ricci says the $60,000 retainer and $350 hourly fees turned the company off.

In fact, the board didn't exactly embrace a reorganization scenario. Ricci says Progear wasn't very confident, even if it secured debtor-in-possession financing and reorganized, that it could survive strategically against its larger, richer rivals, given its limited capital and product offerings. Progear's directors didn't think it likely that the company would develop an enterprise value that would provide a reasonable return on its investment if it were to later sell its assets.

The company's performance was best from 2004 to 2007, but with the down economy, management and the board were unsure Progear could return to that point and maintain a standalone business, even if it received an infusion of a couple of million dollars.

It was at this point that Ricci hired Jan Hammerman, a Centennial, Colo., single practitioner, to give the Progear board a primer on bankruptcy while another lawyer provided counsel on the potential sale of the company due to the bid it had received. "Hammerman was helpful in promoting the idea that Chapter 7 was a worthwhile and legitimate way to solve the problem compared with a Chapter 11 or involuntary case," Ricci recalls.

Interest in the acquisition offer started to wane because the proceeds wouldn't have provided much of a recovery to other creditors besides Colorado State Bank and Trust, Ricci says. (Even the bank, which was owed $556,355 in prepetition debt, was willing to take a haircut.) Progear's board also felt that if it accepted the offer, it would be subject to claims from creditors who were not going to receive anything in the sale, he notes.

And given the spot Progear was in, time was of the essence. The board didn't feel there was enough time to arrange a shareholders' meeting, prepare information for a meeting and hold a vote on the sale, since the company was now facing a daily risk of foreclosure or involuntary bankruptcy forced by its creditors, Ricci explains.

Slowly but surely, Chapter 7 became the preferable course, since Progear wanted to obtain the highest and best price, distribute the most money to creditors and, if possible, even give equity holders something, and do all that while minimizing administrative expenses, Hammerman says. He adds that the company believed all that could be achieved if it was well prepared for the filing, had a solid Chapter 7 trustee appointed and maintained good communication with that trustee.

By the time the situation came to a vote in mid-November, the board felt it could protect itself and get more for Progear's assets if it were marketed in a Chapter 7 case, even though the directors would run the risk of the buyer walking away or having a trustee appointed that might not champion Progear's cause. The meeting was tense and short, and it took several phone calls and e-mails over the next two days to get a majority vote in favor of a Chapter 7 filing. "It was an educated roll of the dice," Ricci says.

One thing that may have helped the Progear board decide to relent and liquidate via Chapter 7 was that no one was going to be left destitute by the company's demise. "Not a single shareholder had so much wealth tied up in the company to see it through and make sure they would not be sunk," says Ricci, who holds a $150,000 claim against the company and is owed over $50,000 in interest on an unsecured loan. "They would still be able to live, pay their bills and maintain their lifestyles if they walked away from Progear."

So all the bankruptcy paperwork was prepared, the filing was made, and Lewis found himself trustee. By mid-December, he hired Heritage Global Partners, a San Diego-based auction house, to help sell Progear's assets.

Lewis' expediency impressed Hammerman, who had been enlisted as debtor counsel. He says Lewis was willing to take extra time to understand the case and to listen to Ricci and the company's managers, even though as the Chapter 7 trustee, he was the one in charge.

Heritage Global then marketed the assets globally for three to four weeks by contacting investors, golf equipment makers and distributors, and entrepreneurs. Besides tapping its databases of potential buyers and contacting them all, Heritage Global sent a team to Colorado to inspect Progear's inventories and photograph them.

Within five weeks, a Jan. 18 public auction was conducted, with six bidders in person and six participating by phone. The bidding began at $300,000 -- half of the offer that Pro­gear had received prepetition -- and lasted roughly 30 rounds and 25 minutes, says Brandon Smith, HGP's vice president and director of sales.

Adams Golf emerged the winner with a $1.5 million final bid. Its plan: to combine Progear's Yes! brand with its own to create significant synergies, Ricci says, adding that using HGP added credibility to the auction and unearthed more value for the assets.

In fact, while Lewis originally focused on the sale of Progear's tangible assets, it was HGP that helped him determine the enterprise value of the company as a whole, including its intellectual properties. "The success had very little to do with the fact that [the auction] was done in Chapter 7," HGP's Smith says. "The open outcry auction enterprise sale, if marketed properly, is a great platform to allow interested parties an opportunity to compete to own all assets of the enterprise and take it to new heights."

For his part, Ricci still doesn't believe that the Chapter 7 filing was an audacious move, but he does feel it was a bold decision given how often Chapter 7 is derided. He says he stayed on at the company even though he knew a Chapter 7 trustee would be appointed, because he felt an ongoing fiduciary duty to Progear's creditors. Of course one of those creditors was Ricci himself, making for a true alignment of interests in the case.

Hammerman says Ricci's continued involvement played a tremendously influential role in how successfully Progear's liquidation turned out. "His efforts went well above and beyond what most management would be willing to do, and it had a positive outcome on the case," he says.

Indeed, when you look back on the Progear case, what's striking is how many factors lined up to make the Chapter 7 option workable. The company had assets that could be sold. Ricci remained and kept many of his top managers in place. Ricci got along with the trustee, and there were no major disagreements about strategy. The auction could be held quickly, before the assets decayed.

Ricci's presence may be the single most important factor that's often missing in Chapter 7 cases.

Nonetheless, Hammerman doesn't think that Chapter 7 should be the idiosyncratic M&A transaction many make it out to be. "[Chapter 7] is an option that should be looked at more carefully because Chapter 11 is a very expensive process," he says. "[Progear's] goal was straightforward, to fetch the highest and best price, and [Chapter 7] was an effective way of doing that."