Mammoet-Starneth LLC, an international engineering company that designs and constructs giant observation wheels and structures, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Case No. 17-12925).

This post examines an interesting intersection between bankruptcy and tax laws: if a corporation terminates its Subchapter S status pre-bankruptcy, can a bankruptcy trustee bring fraudulent transfer claims against the corporation’s shareholders to recover resulting tax refunds they receive? One bankruptcy court recently dismissed such fraudulent transfer claims on the ground that the corporation’s S status wasn’t property of the debtor’s bankruptcy estate, and thus the trustee couldn’t pursue the claims.

The Bottom Line

This case should sufficiently concern private equity investors who extend secured credit, appoint a board member, are granted an option to purchase the business, and then foreclose and take over the business when the debtor–predictably–defaults.

As more and more states pass laws allowing the sale of marijuana, whether for medicinal or recreational purposes, investors will try to claim their share of what is certainly going to be a lucrative market. However, even in a growing market, private enterprises fail or need restructuring. This raises the question of whether distressed marijuana businesses, and those doing business with marijuana businesses, can seek relief under the Bankruptcy Code.

Following rulings from other appellate courts in other appellate districts, Florida’s Third District Court of Appeal recently reversed a trial court’s order involuntarily dismissing a mortgagee’s foreclosure against a borrower holding that the mortgagee’s witness from its current mortgage servicer laid a sufficient foundation at trial to admit business records from a prior mortgage servicer necessary to prove a default under Florida’s business records exception to hearsay.

Kilpatrick Townsend partner David Posner spoke at a recent New York State Bar Association event where he and other panelists discussed the topic “Around the Edges of IP: Complexities of IP in Bankruptcy.”

Mr. Posner provides four key takeaways from his presentation — “Recent Trends Involving Intellectual Property in Bankruptcy:”

On December 11, 2017, Charming Charlie Holdings, Inc. (“Charming Charlie”), the Houston–based fashion jewelry and accessories chain filed a Chapter 11 Bankruptcy Case in the United Bankruptcy Court for the District of Delaware. Charming Charlie has closed about 100 of its 360 stores. Further, its New York City flagship location on Fifth Avenue will soon close.

The company is working with turnaround advisor AlixPartners LLP, in addition to other restructuring advisors and attorneys.

On October 20, 2017, in In re MPM Silicones, LLC ("Momentive"), Nos. 15-1682, 15-1771, 15-1824, the Second Circuit Court of Appeals, considering the Supreme Court's opinion in Till v. SCS Credit Corp., 541 U.S. 465 (2004), adopted the Sixth Circuit's two-step approach to determining an appropriate cramdown interest rate that, in certain circumstances, results in the application of a market rate of interest. In doing so, the Second Circuit reversed the bankruptcy and district court holdings on the cramdown interest rate issue.

The Second Circuit recently issued its decision on an appeal to the Momentive Performance Materials Inc. (“MPM”) bankruptcy case. Amongst other issues, the Court found that when determining the appropriate interest rate in a Chapter 11 cramdown, courts should consider market factors rather than strictly apply the Till formula. The Court’s decision will benefit secured creditors when a market rate is ascertainable, as they will no longer have to accept below-market take-back debt.