Adjustable rate mortgages began to reset just as the economic outlook for subprime borrowers soured. Defaults on subprime debt inevitably followed. The onslaught of litigation against all players in the subprime lending arena followed just as inevitably.

I. INTRODUCTION

Bankruptcies and restructurings involving partners and partnerships1 raise a number of unique tax issues. While the IRS has provided guidance with respect to a number of these issues, a surprising number of unresolved issues remain. The first part of this outline summarizes the state of the law with respect to general tax issues that typically arise in connection with partner and partnership bankruptcies and restructurings. The balance of the outline discusses tax issues that arise under Subchapter K when troubled partnerships are reorganized.

With the possibility of a major stock brokerage liquidation appearing more likely than it has been in recent periods, the effect of a liquidation on customers and financial counterparties has become of great interest to many of our clients and others.

When an insurer becomes insolvent and is placed in rehabilitation or liquidation, state insurance laws are very clear that reinsurance proceeds owed by the insolvent insurer’s various reinsurers may not be denied or reduced as a result of the insolvency. The insurer’s policyholders, however, may only look to the estate of the insurer for payment of claims. But, what happens in a situation where the insolvent insurer never took on any risk but merely acted as a fronting carrier for the reinsurer?

If you thought, like many, that the Delaware Supreme Court’s decision in Trenwick Am. Litig. Trust v. Billet, 2007 Del. LEXIS 357 (Del. 2007), put the theory of “deepening insolvency” to rest, once and for all, well, think again. A recent decision, George L. Miller v. McCown De Leeuw & Co. (In re The Brown Schools), 2008 Bankr. LEXIS 1226 (Bankr. D. Del. April 24, 2008), from the United States Bankruptcy Court for the District of Delaware shows that “deepening insolvency” endures, albeit in reduced form.

In March 2008, the Court of Appeals for the Seventh Circuit decided In re Airadigm Communications, Inc. (Airadigm Communications, Inc. v. FCC),1 a case that built upon the Supreme Court’s decision in FCC v. NextWave Personal Communications, Inc (“NextWave”).2 In NextWave, the Supreme Court held that the FCC’s participation in a bankruptcy proceeding is subject to the provisions of the Bankruptcy Code.

Introduction

In Oneida Ltd. v. Pension Benefit Guaranty Corp. (In re Oneida Ltd.),1 the United States Bankruptcy Court for the Southern District of New York addressed whether a premium payment created by the Deficit Reduction Act of 2005 (“DRA”)2 for pension plans terminated as part of a chapter 11 restructuring is a pre-petition claim or a post-petition administrative expense. The Court held that the statutorily mandated premium payment was a contingent pre-petition claim and was discharged upon confirmation of the debtor’s plan.

Section 510(b) of the Bankruptcy Code provides that claims for “damages arising from the purchase or sale of . . . a security” of the debtor or an affiliate of the debtor are subordinated to any claims not based on stock. 11 U.S.C. § 510(b). Because there is rarely enough value in a bankrupt company to satisfy all claims, a determination that a particular claim is subject to mandatory subordination under section 510(b) means that, as a practical matter, the claim is unlikely to receive any distribution from the estate.

In May of 2006, the U.S. Bankruptcy Court in Chicago, Illinois, issued an 89-page opinion finding that a common stock valuation performed by KPMG (n/k/a BearingPoint) was reasonable and appropriate. The valuation had been performed in September 2000 of high-tech start-up Nanovation Technologies, Inc. After Nanovation filed for bankruptcy in 2001, the bankruptcy trustee sued BearingPoint, alleging that the valuation had been negligently performed and had grossly overvalued the stock.

A federal district court in Michigan has affirmed a bankruptcy court’s refusal to accept a higher bid for various estate assets because the bid was made after the close of the auction, albeit prior to the hearing to confirm the auction results. Evangelista v. Opperman (In re Sebert), No. 07-15509 (E.D. Mich. Mar. 11, 2008).