In the January 2008 issue, we reported on In re Solutia, Inc.,1 decided by the United States Bankruptcy Court for the Southern District of New York. The Solutia court demonstrated how contractual entitlements of debt instruments may be altered in bankruptcy. There, the original issue discount of certain secured notes was found to be interest, rather than principal, causing a significant portion of the noteholders’ claims to be disallowed. In In re Urban Communicators PCS, Ltd.

In a recent adversary proceeding brought by a chapter 7 trustee to recharacterize a creditor’s claim from a debt claim to an equity interest, the United States Bankruptcy Court for the District of South Carolina denied a creditor’s motion to dismiss for failure to state a claim where the trustee had alleged that the lender assumed control over the corporation after the date of the credit agreement.

In In re SNTL Corp.,1 the United States Bankruptcy Appellate Panel of the Ninth Circuit recently decided that if a creditor is required in another proceeding to disgorge as a preference a payment that had been guaranteed by the debtor, the debtor’s liability as guarantor may be revived, provided that the agreement releasing the debtor from its guarantee obligation to the creditor explicitly permits such revival.

Background

In CDI Trust v. U.S. Electronics, Inc. (In re Communications Dynamics, Inc.),1 the United States Bankruptcy Court for the District of Delaware addressed the issue of whether a rejection damages claim is subject to setoff against a pre-petition debt owed by the creditor to the debtor. The Court found that a rejection damages claim should be treated as if it arose pre-petition, and that the provisions of section 553 permitted, rather than prevented, the setoff of the rejection damages claim against the pre-petition debt.

Background

As recently reported in our Fall 2007 issue, Judge Lifland’s decision in In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd.,1 limited the ability of offshore funds in financial distress to utilize chapter 15 of the Bankruptcy Code.

Introduction

In a May 23, 2008 decision, the United States Bankruptcy Court for the District of Delaware ruled that BBB-rated mortgage-backed notes are eligible for the Bankruptcy Code's repurchase agreement safe harbor as “interests in mortgage loans”. The court also held that a repurchase agreement constituted a sale, as opposed to a financing governed by UCC Article 9 -- the first decision on this topic since the financial contract safe harbors were expanded under the 2005 amendments to the Bankruptcy Code.

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.

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.