The power of a debtor or trustee to avoid preferential transfers that benefit certain creditors over others is critical to achieving one of the primary tenets of the Bankruptcy Code – the equality of treatment among all creditors. This ability to recover preferences prevents a debtor from favoring certain creditors over others by transferring property in the time leading up to a bankruptcy filing. Although these preference powers are broad, they are restrained by certain conditions, including a minimum threshold on amounts that can be avoided.

On April 15, 2016, the IRS released a generic legal advice memorandum (GLAM 2016-001) (the “April GLAM”) addressing the impact of so-called “bad boy” guarantees (also known as nonrecourse carve-out guarantees) on the characterization of underlying partnership debt as recourse vs. nonrecourse under Section 752 of the Internal Revenue Code.

VE Vegas Investors IV LLC and others vs Shinners and others [2018] EWHC 186 Ch

Background

The applicants were creditors of VE Interactive Limited (In administration) (“VE”). VE encountered financial difficulties and its directors sought insolvency advice from insolvency practitioners at Smith and Williamson (“S&W”) and appointed them to advise on and effect a pre-pack sale of VE’s business and assets.

Two recent rulings have provided significant guidance on the determination of whether an entity is eligible to be a debtor under Chapter 9 of the Bankruptcy Code. On April 26, 2010, the Bankruptcy Court for the District of Nevada issued a decision denying a motion to dismiss the Chapter 11 case of Las Vegas Monorail Company (LVMC) filed by Ambac Assurance Corp. In re Las Vegas Monorail Company (Las Vegas Monorail).

IN RE: SOUTH BEACH SECURITIES (May 19, 2010)

As previously discussed here, Ambac Financial Group Inc. has filed for bankruptcy for Chapter 11 bankruptcy relief with United States Bankruptcy Court for the Southern District of New York. Immediately following its bankruptcy filing, Ambac sued the United States to block the Internal Revenue Service from placing a lien on its assets in an attempt to recover an estimated $700 million in tax refunds that the agency believes it may be owed.

In our June 4, 2009 Client Update, we reported on the jury verdict the Securities and Exchange Commission ("SEC") obtained against Charles Conaway, the former CEO of Kmart Corp for misleading investors about inventory and liquidity levels as the company was approaching its January 2002 Chapter 11 bankruptcy filing.

In Ransom v. FIA Card Servs., N.A., --- S.Ct. ----, 2011 WL 66438 (U.S. 2011), the United States Supreme Court took up the question of whether a Chapter 13 debtor who owns his or her vehicle outright (“free and clear”) may claim an allowance for car ownership costs and thereby reduce the amount that he or she will repay creditors. In her first opinion, Justice Kagan answered simply—no. The Ransom opinion has been seen as a victory for not only credit card companies like the one involved but other creditors, as well.

The current "Great Recession," which began in late 2007 with a maelstrom in the debt capital markets, has necessitated a rethinking of the federal income tax rules governing debt restructurings. The harsh rules2 promulgated by the Internal Revenue Service (IRS) in reaction to the 1991 taxpayer-favorable decision in Cottage Savings v. Commissioner,3 have been inhibiting restructurings. Instead, rules that did not trigger adverse tax results have been needed to induce lenders and borrowers to restructure obligations that can no longer be paid according to their terms.

In the first opinion authored by Justice Elena Kagan, the Supreme Court ruled that a Chapter 13 debtor may not deduct the “ownership costs” of a vehicle under the means test when he owes no further payments on the vehicle, affirming a decision of the Ninth Circuit Court of Appeals. The 8-1 opinion featured a pro-debtor dissent by Justice Scalia.