Bankruptcy and Restructuring Blog

In a recent decision, the United States Supreme Court ruled that asset sales in bankruptcy that occur after plan confirmation will be exempt from certain and often potentially costly state taxes, whereas sales that occur before plan confirmation will not be so exempt. In so ruling, the Court resolved a circuit split regarding the meaning of the statutory phrase "under a plan confirmed under [Chapter 11] of the bankruptcy Code," as codified in 11 U.S.C. § 1146(a).

The case arose from the bankruptcy of Piccadilly Cafeterias, Inc.  At one time among the nation's most successful cafeteria chains, Piccadilly had fallen on hard financial times.  In 2003, Piccadilly filed for Chapter 11 bankruptcy protection in the Southern District of Florida.  As the centerpiece of its reorganization efforts, Piccadilly sought court authorization to sell virtually all of its assets in a § 363(b)(1) sale pursuant to a settlement agreement reached with creditors.  The bankruptcy court granted this authority.  In authorizing the sale, the bankruptcy court further ruled Piccadilly's transfer of assets would be "exempt from stamp taxes under § 1146(a)."  (Maj. Slip Op. at 2.)  Piccadilly closed its sale on March 16, 2004.

In a recently-issued Revenue Procedure (Rev. Proc. 2008-28), the IRS states that the modification of certain mortgage loans under foreclosure prevention programs involving, for example, interest rate reductions, principal forgiveness, extensions of maturity and alterations in the timing of changes in an interest rate generally will not cause the IRS either to challenge the tax status of certain securitization vehicles that hold the loans or to assert that those modifications create a liability for tax on a prohibited transaction. This relief is granted to real estate mortgage investment conduits (REMICs) and investment trusts where the mortgage loan meets all of the following conditions:

In the case of The HA2003 Liquidating Trust v. Credit Suisse Securities (USA) LLC, __ F.3d __ (7th Cir. 2008) ("HA2003"), HALO, an acquiring company, hired CSFB, an investment banker, to (i) renegotiate the economic terms of a stock acquisition of the dot-com target company, Starbelly.com, and (ii) issue a fairness opinion on behalf of HALO in connection with the acquisition.  Concluding that CSFB did not act grossly negligent in issuing the fairness opinion even though the fairness opinion was based on numbers known by HALO's management to be inaccurate, the Seventh Circuit refused to impose liability on CSFB for alleged damages suffered by HALO and its shareholders when HALO became insolvent and filed bankruptcy after the acquisition.

By Order, dated January 14, 2008, United States Bankruptcy Judge Martin Glenn for the United States Bankruptcy Court for the Southern District of New York, granted the motion (the "Motion") filed by a group of creditors seeking transfer of venue of the Dunmore Homes, Inc. (the "Debtor") bankruptcy case from the United States Bankruptcy Court for the Southern District of New York (the "Court") to the Eastern District of California, Sacramento Division.  A number of other creditors and the Official Unsecured Creditors Committee joined in the Motion.  The Motion was opposed by the Debtor, bondholders and two bank creditors.