The Internal Revenue Service’s recently issued general legal advice memorandum (GLAM) should provide beneficial results to certain taxpayers that use a check-the-box election to convert an insolvent foreign corporation into a partnership.

Overview

This past quarter end once again reminded us that the economy remains weak and borrowers who have managed to hang on for the past three or four years are running out of staying power. The topic again arose - what to do when a borrower files bankruptcy? Faced with the prospect of throwing good money after bad, some lenders bury their head in the sand and simply wait it out, often with terrible results. Others charge ahead aggressively and run up large legal bills that are not justified by the amount of the obligation or the difficulty of recovery.

Recently, the Third Circuit held that withdrawal liability triggered after a bankruptcy filing date may be apportioned to pre- and post-petition service for the debtor, and that the withdrawal liability attributable to post-petition service may be entitled to priority over general unsecured claims under the Bankruptcy Code.  Employers that participate in a multiemployer pension plan should determine the claims impact of withdrawal in light of this court decision and also assess whether filing for bankruptcy protection outside of the Third Circuit is appropriate.  

The United States Bankruptcy Court for the Central District of California recently held that the filing of a bankruptcy petition by a borrower can void a trustee sale even where the petition is filed after the trustee sale, so long as the borrower files the petition before the execution of the trustee's deed upon sale. In re: Gonzales 2011 WL3328508 (Bkrtcy. C.D.Cal. August 1, 2011).

Considering the fate to befall certain trademarks upon an owner’s bankruptcy, the U.S. Court of Appeals for the Seventh Circuit Court determined that a trademark license is not assignable without the owner’s express permission or in the absence of a clause explicitly authorizing assignment and a trademark license cannot be implied from a contract for services.  In re XMH Corp., Case No. 10-2596 (7th Cir. August 2, 2011) (Posner, J.).

On June 14, 2011, the Pension Benefit Guaranty Corporation (PBGC) issued final regulations that apply to single-employer pension plans maintained by employers in bankruptcy. These regulations implement a change made by the Pension Protection Act of 2006 (PPA). The change affects the amount of benefits payable by the PBGC to participants.

In the European Union, Stat e interventions in the market in the form of subsidies or other economic advantages are generally prohibited, but companies can receive aid from Member States if the aid is approved by the European Commission.

Since 2005, pushed by the insolvencies and rescues of large Italian corporations such as Parmalat, Cirio and Alitalia, the Italian legislature has introduced effective tools aimed at preserving the debtor’s assets and ensuring the successful reorganisation of a debtor’s business to the benefit of all the parties involved.

Tax authorities have perceived recently that international corporate groups are going through internal business restructurings in large part or in whole to achieve income tax savings.

The German Government has introduced a reform of the German Insolvency Code (Insolvenzordnung– InsO) in order to further facilitate business restructurings in Germany.