One recent bankruptcy auction included the sale of rights to a patent with significant potential value. The buyer bought the patent at a fraction of fair value. Although bankruptcy courts aim to realize the highest possible price for the assets being sold, in reality, because the assets are from distressed businesses, they usually go for prices considerably lower than going concern value. Adding to price pressure is the involvement of court-appointed trustees. The vast majority of bankruptcies are Chapter 7 liquidation cases in which a trustee is always appointed.
Trustees have a statutory duty to liquidate the assets under their charge.
Trustees often do not have the opportunity to delve deeply into each debtor's business and industry environment, and therefore cannot know the worth of the assets in each industry. In addition, because a Chapter 7 is a liquidation, the prices of the assets sold by a trustee are often much lower than if those assets were valued as part of a going concern. Even in cases where the debtor has an on-going operation, sales are more often than not a result of pressure to generate cash. Another benefit of purchasing assets in bankruptcy is that the sale can be structured so that it's free and clear of all liens, claims and security interests. For example, when it comes to buying business locations in bankruptcy, the landlord can often be compelled to assign the lease agreement to the buyer, notwithstanding restrictions in the lease.