The Bottom Line

In Metropolitan Government of Nashville & Davidson County v. Hildebrand, the Sixth Circuit explains how to read the phrase “applicable nonbankruptcy law” as used in the Bankruptcy Code. The chapter 13 individual bankruptcy case discussed the phrase in the context of 11 U.S.C. § 511(a), which provides that the appropriate interest rate for tax claims is whatever “applicable nonbankruptcy law” provides.

The decision

(6th Cir. Feb. 23, 2017)

The Sixth Circuit affirms the bankruptcy court’s decision to confirm the debtor’s Chapter 13 plan, which included payment of overdue property taxes under Tennessee law with an interest rate of 12%. The state argued that the interest rate should be 18% due to the additional 6% interest permitted under the applicable state statute for a default penalty. The court holds that the 12% provided in the “nonbankruptcy law” is applicable, while the 6% penalty is not applicable. Opinion below.

Judge: Stranch

(6th Cir. B.A.P. Feb. 2, 2017)

The Sixth Circuit B.A.P. affirms the bankruptcy court’s judgment in favor of the plaintiffs in the nondischargeability action. Collateral estoppel prevented the debtor from defending against the claim that the debt arose from fraud and a willful and malicious injury. A Tennessee state court had entered a default judgment against the debtor that included specific factual findings that established a claim for nondischargeability under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), and (a)(6). Opinion below.

Judge: Opperman

A recent judgment for partial dismissal by the United States District Court for the Middle District of Tennessee reinforces that a bank, when serving as a depository of fiduciary funds, may be shielded from liability for the fiduciary’s misconduct by the powerful protections of Tennessee’s Uniform Fiduciaries Act (the “UFA”).  

Business structures are often reorganized to assist in isolating liabilities, support discrete product brands and address favorable tax environments. However, in certain fact situations, unintended Tennessee excise tax consequences can result from certain reorganizations. Such was the outcome of the Tennessee Supreme Court's recent decision in Blue Bell Creameries, LP v. Richard Roberts, Commissioner of Revenue, published January 24, 2011.

The Holding

Recent legal and regulatory developments have raised issues for those considering a loan-to-own acquisition strategy, and have continued to impact both the structure of highly leveraged financings and the makeup of those willing to provide it.

In re RML  --  Irrational Exuberance?

Waldschmidt v. Singletary Construction LLC (In re Tackett), 516 B.R. 498 (Bankr. M.D. Tenn. 2014) –

A bankruptcy trustee sought turnover of profits from the sale of homes constructed by a contractor.  The trustee contended that there were contracts between the debtor and the contractor pursuant to which the debtor agreed to reimburse the contractor for its costs plus pay a $15,000 contractor’s fee for each home.

Although likely not the intent of In re Siag Aerisyn, LLC, a recent decision from the United States Bankruptcy Court for the Eastern District of Tennessee Southern Division, some might argue that the opinion serves as a how-to guide for masking a capital contribution by an affiliate as a loan constituting bona fide debt.

In re Denman, 513 B.R. 720 (Bankr. W.D. Tenn. 2014) –

A chapter 13 debtor was a member of a limited liability company. Another member sought relief from the automatic stay in order to exercise a right to acquire the debtor’s membership interests pursuant to the LLC operating agreement.