On December 22, 2011, the United States Bankruptcy Court for the District of Delaware inIn re JER/Jameson Mezz Borrower II LLC 1 dismissed with prejudice a mezzanine borrower’s bankruptcy case for bad faith under Section 1112(b) of the Bankruptcy Code. In doing so, the court clarified that the standard in the Third Circuit to evaluate the good faith of a debtor seeking shelter under the umbrella of Chapter 11 of the Bankruptcy Code is an objective one and does not consider the subjective good faith of a debtor as do courts within the Secon d Circuit.
Generic Legal Advice Memorandum AM 2011-003 (August 18, 2011)
Overview
The Second Circuit Court of Appeals has now weighed in on the Bankruptcy Code’s safe harbor provisions. In Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., Docket Nos. 09–5122, 09–5142, 2011 WL 2536101 (2d Cir. June 28, 2011), the Second Circuit Court of Appeals faced an issue of first impression—whether Section 546(e) of the Bankruptcy Code, which shields certain payments from avoidance actions in bankruptcy, extends to an issuer’s payment to redeem its commercial paper made before maturity.
A bankrupt holding company has reportedly agreed to pay $8.7 million to settle nuisance claims brought by a number of California cities and counties alleging public health problems caused by lead paint in homes and buildings. The funds will apparently be used to remediate lead paint-related health issues. Other defendants include lead paint manufacturers and distributors; trial against them is expected in 2012. California prosecutors are seeking an order requiring the cleanup of lead-contaminated buildings and a monetary contribution for public health efforts. See Law360, June 24, 2011.
The Fifth Circuit Court of Appeals has affirmed decisions of the bankruptcy court and a federal district court that the purchaser of a bankrupt company’s assets cannot recover the costs of environmental remediation from an escrow account established as part of the purchase agreement.In re Evans Indus. Inc., No. 10-30387 (5th Cir. 6/21/11) (unpublished).
In Lehman Brothers Special Financing, Inc. v. Ballyrock ABS CDO 2007-1 Limited (In re Lehman Brothers Holdings, Inc.), Adv. P. No. 09-01032 (JMP) (Bankr. S.D.N.Y. May 12, 2011) [hereinafter “Ballyrock”], the United States Bankruptcy Court for the Southern District of New York held that a contractual provision that subordinates the priority of a termination payment owing under a credit default swap (CDS) to a debtor in bankruptcy, and which caps the amount of the termination payment, may be an unenforceable ipso facto clause under section 541(c)(1)(B).
You will rely on section 355 for nonrecognition, but here you also must rely on section 332 to make the liquidations tax free, without any liquidation-reincorporation problem. It's very clear that you can get the results you want, but not clear why.
LTR 201123022 describes these facts, in simplified form:
A bankruptcy court in Delaware has ruled that a debtor’s CERCLA claims are “non-core” claims that fall outside the administration of the estate in bankruptcy. NEC Holdings Corp. v. Linde LLC, No. 10-11890 (Bankr. D. Del.
In Geltzer v. Mooney (In re MacMenamin’s Grill, Ltd.), Adv. Pro. No. 09-8266 (Bankr. S.D.N.Y. April 21, 2011), the United States Bankruptcy Court for the Southern District of New York held that the safe harbor in section 546(e) of the Bankruptcy Code does not apply to a small, private leveraged buyout (LBO) transaction that posed no systemic risk to the stability of the financial markets.
The taxpayer was able to convince the court that the creditors who got the stock in the reorganization were not the prior owners. Because the events occurred in 1992, under a prior version of the continuity of proprietary interest rules, continuity of ownership was broken and a section 338(h)(10) election could be made and the basis in the assets inside the corporation stepped up to fair market value, with no tax liability because the seller was in bankruptcy with large net operating losses (NOLs).