On June 16th, the Supreme Court of the United States issued a decision that is likely to have a significant impact on how debtors will sell assets in bankruptcy. InFlorida Department of Revenue v.
Resolving a split among various circuits, the United States Supreme Court has ruled that the exemption from state stamp taxes under section 1146(a) of the Bankruptcy Code does not apply to asset sales under section 363 of the Bankruptcy Code that took place before confirmation of a debtor’s chapter 11 plan—an event that may take months or years to accomplish.1
In the case of Florida Dept. of Revenue v. Piccadilly Cafeterias, Inc.,1 the United States Supreme Court ruled that the exemption from the payment of stamp taxes or similar taxes on transfers of property of a Chapter 11 debtor’s estate, contained in section 1146(a) of the Bankruptcy Code,2 does not apply to transfers of property made before a Chapter 11 plan is confirmed.
On June 16, 2008, the United States Supreme Court held that the stamp-tax exemption under 11 U.S.C. § 1146(a) does not apply to transfers made before confirmation of a Chapter 11 plan. This decision will impact the structuring of asset sales in Chapter 11 cases where the transfers involve significant stamp taxes or similar taxes. Full text of the opinion.
The Court of Appeals for the Sixth Circuit became the first circuit court to rule on the issue of whether a bankruptcy court has authority to retain a case filed in improper venue. The Court found that a bankruptcy court may not retain jurisdiction on a case that was filed in an improper venue. In Thompson v. Greenwood, 507 F.3d 416 (6th Cir. 2007), the Sixth Circuit follows strict statutory construction in holding that where there is improper venue a bankruptcy court must dismiss the case or transfer it to a district where it could have been brought originally.
Debtors operating under Chapter 11 bankruptcy protection routinely sell some or all of their assets during the course of their bankruptcy case. As part of a bankruptcy court approved sale process, debtors often request that the court exempt such transfers from stamp taxes1 pursuant to Bankruptcy Code § 1146(a). The exemption generally reduces obligations encumbering a debtor’s property and allows for a greater portion of sale proceeds to be available for distribution to creditors.
Sales of assets under a confirmed plan in a Chapter 11 bankruptcy are exempt from transfer taxes. Many courts had interpreted the exemption broadly and applied the exemption to sales that occur during a bankruptcy, but before a Chapter 11 plan had actually been confirmed, so long as the sale was generally in furtherance of the ultimate goals of bankruptcy. The Supreme Court imposed a strict interpretation of the statute stating that transfer taxes must be paid unless the sale actually occurs pursuant to an already confirmed plan. Florida Department of Revenue v.
The “Ades” and “Berg” groups of investors (the “Ades Berg Group”), were parties who joined in the bankruptcy proceedings of the Bennett Funding Group, Inc. and related companies (the “Bennett Group”), based on claims that, among other things, the Bennett Group had defrauded them in an investment scheme. The Bennett Group was insured under a reinsurance contract issued by Sphere Drake Insurance PLC (“Sphere Drake”). A settlement was reached in the course of the bankruptcy proceedings between some groups of investors and Sphere Drake.
When a creditor seeks equitable relief in a bankruptcy court, must the court always follow common law principles of equity? Not according to several courts, including the Second Circuit. Concluding that the granting of equitable remedies may circumvent the Bankruptcy Code's equitable distribution system, courts have limited the application of equitable remedies in the bankruptcy context.
In In re Entringer Bakeries, Inc.,1 the United States Court of Appeals for the Fifth Circuit affirmed the viability of the “earmarking doctrine” as a judicially-created defense to a preference action under section 547(b) of the Bankruptcy Code.