It is no secret that restaurants and bars have high mortality rates. When these businesses fail, liquor licenses are frequently the only remaining valuable asset. Liquor licenses are crucial to restaurants and other hospitality venues’ ongoing operations and can be worth a lot of money.

Unlike with other assets, antiquated state laws dating back to the repeal of prohibition regulate alcohol beverages in ways that seem to defy logic, and they can make selling a liquor license next to impossible. Depending on the state of issuance and the class, liquor licenses may be transferrable. Private-party security interests in liquor licenses and governmental liens can impact transferability, and navigating these encumbrances in bankruptcy can be tricky. The following is a set of crucial questions for a debtor-in-possession or bankruptcy trustee to ask when dealing with a liquor license:

Is the Liquor License Property of the Estate?

The threshold question in a bankruptcy proceeding is whether the liquor license constitutes “property of the estate” pursuant to 11 U.S.C. § 541. Unlike many other assets, liquor licenses require governmental approval and can be revoked upon proof of misconduct in most states. The majority of courts have held that a liquor license is “property” under the Bankruptcy Code, even if the license is not considered “property” under applicable state law.

State court receiverships have become a popular alternative to federal bankruptcy proceedings for the sale of distressed businesses. In Wisconsin, Wis. Stats. Chapter 128 sets forth a statutory process allowing for the liquidation of a debtor company’s assets and the distribution of the sale proceeds to creditors in a state court-supervised proceeding. There are several benefits associated with initiating a Chapter 128 receivership (which can be voluntary or involuntary) rather than a bankruptcy proceeding. Those benefits include greater flexibility, more expeditious asset sales and lower costs.

Wisconsin receivership law has largely been developed in practice, as the statute is, in its entirety, five pages long. As a result, receivers, subject to the consent of the court and the senior secured creditor, exercise their business judgment when administering the assets of the receivership estate.