Introduction

The United States Bankruptcy Court for the Southern District of New York ruled recently on the validity of “gift plans” – plans of reorganization under which a senior creditor “gifts” assets to a junior creditor or equity holder.1 In In re Journal Register Co.,2 Bankruptcy Judge Alan L. Gropper approved a plan in which secured lenders gifted a portion of their recovery to certain trade creditors, and detailed some of the important limitations on gift plans.

Evolution of the Gift Plan Doctrine

Introduction

On March 30, 2009, the United States Supreme Court heard oral argument in Travelers Indemnity Co. v. Bailey,1 a case that addresses the jurisdiction of bankruptcy courts to authorize third-party releases in the context of a debtor’s plan of reorganization.

In ABN Amro Bank N.V. v. Parmalat Finanziara S.p.A. (In re Parmalat Finanziara S.p.A.),1 the United States District Court for the Southern District of New York affirmed the Bankruptcy Court’s entry of an injunction pursuant to former section 304 of the Bankruptcy Code (the precursor to current chapter 15, applicable in crossborder insolvency proceedings), which prevented the beneficiary of a guaranty governed by New York law from asserting its guaranty claim against Italian debtor (and guarantor) Parmalat S.p.A. (“Parmalat”) in the United States.

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.

Creditors have recently made some headway in collecting the full amount to which they are contractually entitled pursuant to various debt instruments. In In re Calpine Corp.,1 reported in our summer 2007 newsletter, the Bankruptcy Court for the Southern District of New York permitted a secured creditor to collect damages (albeit in the form of an unsecured claim) caused by dashed expectations due to the early repayment of its debt.

Although almost eight years have lapsed since the chapter 11 cases of Tulsa, Oklahoma-based SemCrude L.P.

On April 1, 2013, the U.S. Bankruptcy Court for the Eastern District of California ruled that the City of Stockton qualified to file for protection under chapter 9 of the Bankruptcy Code. The court’s decision on this issue serves as an important milestone for chapter 9 jurisprudence, clarifying the requirements for “good faith” negotiations and being “insolvent” as conditions to filing for chapter 9 protection. Significantly, the court held that a municipal debtor need not negotiate with all of its creditors, only those that it intends to impair.

After a final mediation session between Hostess and its unions failed to put Hostess’s reorganization back on track, Bankruptcy Judge Robert Drain authorized the orderly wind down of Hostess’s operations.  As a result, Hostess will prepare to sell its assets and shut down its factories.  However, a purchaser may seek to restart the production of the beloved baked goods such as Twinkies, Ho-Hos and Donettes.

On August, 15, 2012, Bankruptcy Judge Sean H. Lane of the Southern District of New York denied American’s motion to reject its collective bargaining agreement with the Allied Pilots Association (“APA”) on narrow grounds. The Court held that American had not demonstrated that its proposals to eliminate contractual restrictions on pilot furloughs and enter into essentially unlimited codesharing arrangements were necessary to its reorganization.

The recent bankruptcy case of Hostess has centered on Hostess’s attempts to reject collective bargaining agreements with its unions.  Hostess has emphasized that realigning labor costs is essential to its ability to successfully reorganize.  Section 1113 of the Bankruptcy Code sets forth detailed requirements that a debtor must meet to modify or reject CBAs.  Bankruptcy courts’ ultimate decision to authorize rejection of a CBA frequently turns on a detailed examination of the evidence presented in support of the rejection motion.