Confirmation of a chapter 11 plan providing for the reorganization or liquidation of a debtor is the culmination of the chapter 11 process. To promote the fundamental policy of finality in that process, the general rule is that a final confirmation order is inviolable. The absence of certainty that the transactions effectuated under a plan are valid and permanent would undermine chapter 11’s fundamental purpose as a vehicle for rehabilitating ailing enterprises and providing debtors with a fresh start.

In re Sea Trail Corporation, Case No. 11-07370- 8-SWH (Bankr. E.D.N.C., Oct. 23, 2012)

CASE SNAPSHOT

Increasingly, struggling businesses are opting to use Chapter 11 bankruptcy as a vehicle to sell substantially all of their assets. This is because Chapter 11 debtors can sell assets under uniquely buyer-friendly conditions. The last several years have revealed a clear trend in favor of quick liquidation by sale motion. As businesses continue to falter and fail due to the continuing financial crisis, it is likely that liquidations by Chapter 11 sale motion will continue to gain popularity.

The Upstream C Reorganization

In the late 20th century, the IRS made a combination of unrelated decisions resulting in a proliferation of upstream C reorganizations. First was the repeal of the Bausch & Lomb rule, meaning that the equity held by a parent corporation in its subsidiary could count as continuity of interest, thus allowing the liquidation of a subsidiary to be treated as an upstream C reorganization. Second, the invention of the check-the-box regulations made subsidiary liquidations (and hence upstream reorganizations) so much easier.

CASE SNAPSHOT

Introduction

• Approximately 5,000 Bakery Confectionery Tobacco and Grain Millers Union (BCTGM) members across the country struck Hostess Brands, Inc., to protest the company’s imposition of its last, best, and final contract. That contract, which provided for an 8% wage cut and a 17% reduction in health and welfare benefits, was rejected by BCTGM members in September, but ratified by some 7,500 Hostess employees represented by the Teamsters. In October, Hostess received federal bankruptcy court approval to impose the contract.

Reports of Twinkie the Kid’s death have been exaggerated.  Despite widespread mainstream media reports of Hostess’ impending liquidation, the court has not yet approved liquidation.  To the contrary, on November 19, 2012, after a brief hearing on Hostess’s emergency motions to begin the wind down of its operations, Hostess and its two main unions agreed to attend a confidential mediation session.  At the mediation, Bankruptcy Judge Robert Drain intends to determine if the parties can avoid liquidation.

In Deere Credit, Inc. v. Cervantes Nurseries, LLC, the Court of Appeals recognized that a parallel bankruptcy proceeding involving multiple creditors is not the same “action” for purposes of RCW 61.12.120’s bar against a plaintiff foreclosing on a mortgage “while he is prosecuting any other action for the same debt or matter which is secured by the mortgage. 

BACKGROUND

LTR 201240017 is the world’s longest letter ruling, 111 pages in PDF format. Not surprisingly, it is a Section 355 ruling. It was issued three-and-a-half months after the original submission, with those dates bridging Christmas and New Year’s Day. There were seven additional submissions from the taxpayer in the interim. The release of the ruling was delayed for a couple of months.