For creditors in bankruptcy proceedings, as with many things in life, priority is everything.  It is often the case that a person filing for bankruptcy has insufficient funds to pay in full all of his or her creditors.  As a result, creditors try to establish their priority so they are more likely to get paid before the money runs out.  Section 507 of the Bankruptcy Code provides rules explaining the order in which expenses and claims have priority in bankruptcy.  Notably, Section 507(a)(8) provides the IRS with priority treatment in bankruptcy with respect to claims for

Democrats now control both houses of the New York Legislature as well as the Governor’s office. A host of legislation may be in the offing. One expected piece of legislation will be passage of the Child Victim Act (CVA).

Background

Does a creditor’s good-faith belief that a discharge injunction does not apply to its debt preclude a finding of civil contempt? Due to a circuit split, the U.S. Supreme Court was asked to decide this issue.

A majority of today’s large Chapter 11 cases are structured as quick Section 363 sales of all the debtor’s assets followed by confirmation of a plan of liquidation, dismissal of the case, or a conversion to a Chapter 7. The purchaser in the sale is often one of the debtor’s prepetition secured or undersecured lenders, which may also act as the debtor-inpossession (DIP) lender and purchase the debtor’s assets through a credit bid, with no cash consideration.

“The right of setoff … allows entities to apply their mutual debts against each other to avoid the pointless exercise of ‘making A pay B when B owes A.’” held the Seventh Circuit on Aug. 17, 2018. Berg v. Social Security Administration, 900 F.3d 864, 868 (7th Cir. 2018). But the Bankruptcy Code (“Code”) limits “a creditor’s right of setoff during the ninety-day period prior to the” date of bankruptcy, said the court. Id.

New Decision Affects D&O Liability

A recent federal bankruptcy court decision addresses important principles of fiduciary conduct (and the benefits of a state exculpatory statute) in the context of a financially distressed not-for-profit hospital.

Toys “R” Us filed for bankruptcy in September 2017, with hopes that a strong holiday season would facilitate a successful reorganization.

Can a bankruptcy trustee recover a fraudulent transfer made six, eight, ten years ago? Bankruptcy courts around the country are answering that question with a resounding “yes”, so long as the IRS holds an unsecured claim against the debtor. If more courts arrive at this conclusion, creditors face the risk that trustees will step into the shoes of the IRS to borrow its ten-year statute of limitations for the recovery of fraudulent transfers.

Under newly issued guidance, the IRS has made it easier for many tax-exempt organizations to restructure.

The IRS will now continue to recognize as exempt, those organizations that:

•             change their structure from an unincorporated association to a corporation;

•             reincorporate from one state to another;

Many tax-exempt organizations can now change their state of organization and retain their current tax exemption.