The taxpayer was able to convince the court that the creditors who got the stock in the reorganization were not the prior owners. Because the events occurred in 1992, under a prior version of the continuity of proprietary interest rules, continuity of ownership was broken and a section 338(h)(10) election could be made and the basis in the assets inside the corporation stepped up to fair market value, with no tax liability because the seller was in bankruptcy with large net operating losses (NOLs).

On February 28, Fitch addressed questions that have arisen related to the orderly liquidation authority under the Dodd-Frank Act and the securitization safe harbor. Fitch stated that clarifications from the FDIC provide comfort that the rights of investors can be determined at the outset of a securitization and that the ratings assigned to the transaction can be de-linked from those of the sponsoring entity.

The Internal Revenue Service (IRS) recently issued rulings regarding the availability of tax losses after a bankruptcy,1 the ability to take a loss under Sections 165(a) and 165(g),2 and the characterization of a loss after an ownership change.3 There are few rulings or other sources of authority for these types of issues, and thus, a review of these rulings provides insight into the IRS’s current thinking on the issues addressed.

PLR 201051020

The United States District Court for the Northern District of Illinois, applying Illinois law, has ruled that an insolvency exclusion barred coverage for claims arising out of an insurance broker’s placement of coverage with an insolvent insurance association. American Automobile Insurance Co. v. B.D. McClure & Associates, Ltd., 2011 WL 211204 (N.D. Ill. Jan. 21, 2011).

On February 22nd, the Bankruptcy Court overseeing the liquidation of Lehman Brothers' broker-dealer business denied motions seeking to modify the order approving the sale of the business to Barclays Capital. The Court noted the extraordinary circumstances surrounding the sale, the affirmance of that sale order, and movants' failure to challenge the order for one year. The court held that even if the evidence presented here were known in 2008, the result would have been the same, i.e., the sale would have been approved.

FDIC Proposes Rules for the Recoupment of Compensation from Executives of Failed Financial Institutions I hope this does not apply to any of you, but on Tuesday, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) approved a Notice of Proposed Rulemaking (NPR) to clarify application of the orderly liquidation authority contained in Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, "Orderly Liquidation Authority" (OLA).

1 Loranger v Jones, 184 Cal App 4th 847 (3d Dist May 2010)

Jones, a licensed contractor, had a workers' compensation policy covering his employees. Jones unknowingly used an unlicensed subcontractor and knowingly permitted two minors without work permits, and another person without a contractor's license, to help perform work for Loranger. Loranger refused to pay the final invoice and Jones filed suit for breach of contract. Loranger cross-complained alleging defects and sought disgorgement of monies paid.  

The Board of Directors of the Federal Deposit Insurance Corporation, or FDIC, approved a Notice of Proposed Rulemaking, or NPR, to further clarify application of the orderly liquidation authority, or OLA, contained in Title II of the Dodd-Frank Act. The FDIC believes the NPR builds on the interim rule approved by the FDIC on January 18, 2011, which clarified certain discrete issues under the OLA.

For over 30 years, most bankruptcy courts have approved plans where the secured lender “gifts” a distribution to a junior class in order to obtain a consensual plan. These courts note that the distribution is from the secured lender’s property (not estate property) and the secured lender can do what it wants with its own property.

Background