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In Decision With Important Tax and Bankruptcy Implications, Supreme Court Rejects Application of So-Called 'Bob Richards Rule'

In its recent decision in Rodriguez v. Federal Deposit Insurance Corp., No. 18–1269 (Sup. Ct. Feb. 25, 2020), the Supreme Court held that federal courts may not apply the federal common law “Bob Richards Rule” to determine who owns a tax refund when a parent holding company files a tax return but a subsidiary generated the losses giving rise to the refund. Instead, the court should look to applicable state law.

General Legal Background

USA, Insolvency & Restructuring, Insurance, Litigation, Tax, Kramer Levin Naftalis & Frankel LLP, Federal Deposit Insurance Corporation (USA), Supreme Court of the United States
The IRS Withdraws Proposed ‘Net Value’ Regulations

The IRS announced in July that it has withdrawn proposed regulations (the net value regulations) that provided guidance regarding corporate formations, reorganizations and liquidations of insolvent corporations. Those regulations, which were proposed in 2005, required the exchange (or, in the case of the liquidation of a subsidiary into its parent, the distribution) of “net value” in order for the transaction to qualify for nonrecognition treatment under the Internal Revenue Code (the Code).

The Net Value Regulations

Net Value in 332 Liquidations

USA, Insolvency & Restructuring, Kramer Levin Naftalis & Frankel LLP, Internal Revenue Service (USA)
First (post-) impressions: insider distribution violates absolute priority rule, and competition is essential element of new value corollary

Until 2013, no circuit court of appeals had weighed in on the implications of the U.S. Supreme Court’s pronouncement in the 203 North LaSalle case that property retained by a junior stakeholder under a cram-down chapter 11 plan in exchange for new value “without benefit of market valuation” violates the “absolute priority rule.” See Bank of Amer. Nat’l Trust & Savings Ass’n v. 203 North LaSalle Street P’ship, 526 U.S. 434 (1999), reversing Matter of 203 North LaSalle Street P’ship, 126 F.3d 955 (7th Cir. 1997).

USA, Insolvency & Restructuring, Litigation, Jones Day, Shareholder, Debtor, United States bankruptcy court, Seventh Circuit
Equitable mootness and arbitration: first impressions in the Ninth Circuit

2012 is shaping up as a year of bankruptcy first impressions for the Ninth Circuit. The court of appeals sailed into uncharted bankruptcy waters twice already this year in the same chapter 11 case. On January 24, the court ruled in In re Thorpe Insulation Co., 2012 WL 178998 (9th Cir. Jan. 24, 2012) ("Thorpe I"), that an appeal by certain nonsettling asbestos insurers of an order confirming a chapter 11 plan was not equitably moot because, among other things, the plan had not been "substantially consummated" under the court's novel construction of that statutory term.

USA, Insolvency & Restructuring, Litigation, Jones Day, Ninth Circuit, Tenth Circuit