In these uncertain times, some companies are exploring ways to restructure their existing credit facilities to navigate business challenges, including cash flow shortages. Highly leveraged companies that are taxed as partnerships, such as the portfolio companies of private equity funds, must carefully consider the significant tax consequences associated with restructuring and modifying their debt obligations, especially if the company is or is likely to be in financial distress.
The hemp industry is facing a rapidly shifting regulatory landscape that could significantly alter the financial and legal viability of many businesses. In the recent episode of TaxTalk x Cannabis Quick Hits, we break down the looming regulatory overhaul, its tax and bankruptcy implications, and the restructuring options available to hemp and cannabis companies navigating financial distress.
A Major Regulatory Shift for Hemp
Bankruptcy and IRS tax debts are deeply misunderstood topics, often surrounded by confusion and anxiety.
For individuals and businesses who know very little about these issues, it’s important to start with the basics – not all tax debts are wiped out by bankruptcy, and the rules for clearing IRS debts are complex. However, bankruptcy can provide relief, or at least breathing room, for those facing insurmountable tax bills.
Here’s what you need to know, presented in practical terms for the average taxpayer.
What Is Bankruptcy?
Earlier this year, the Internal Revenue Service (“IRS”) recognized a victory in United States v. Miller. In this bankruptcy case, the trustee attempted to avoid certain transfers that shareholders of the bankrupt company had made, including a $145,000 transfer to the IRS.
Paul, Weiss Named Chapter 11 Firm of the Year in Global Restructuring Review Awards
Global Restructuring Review (GRR) recognized Paul, Weiss as the “Chapter 11 Firm of the Year” in its 2024 GRR Awards, which honor the most impressive restructuring practices and individuals of the past year. The firm was recognized for its role advising in several major chapter 11 matters, including the restructurings of Hornblower, Lumileds, Revlon and Rite Aid, among others
Brian Hermann Discusses Chapter 11 Trends at Bankruptcy Conference
Section 548 of the bankruptcy code authorizes a trustee, debtor, or other appropriate party to avoid actual and constructive fraudulent transfers that occurred prepetition. In order to prove that a transfer was an actual fraudulent transfer, the trustee (or another appropriate plaintiff) must prove that the debtor made the transfer “with actual intent to hinder, delay or defraud any entity to which to debtor was or became…indebted.” 11 U.S.C. §548(a)(1)(A).
Chart Comparing Exemptions
The specific bankruptcy and nonbankruptcy (Minnesota law and nonbankruptcy federal law) exemptions vary in scope and dollar amount. The following table summarizes and compares the two sets of exemptions. The statutory language of the exemption has been paraphrased in this chart. The actual statutory language as well as case law must be reviewed when analyzing a debtor’s claim for a particular exemption.
Revised August 2024
. . . In such circumstances, sealing the indictment “would undermine the purpose of having a statute of limitations at all.”
Introduction