In a recent decision, the United States Supreme Court resolved a circuit split regarding the meaning of the statutory phrase "under a plan confirmed under [Chapter 11] of the bankruptcy Code," as codified in 11 U.S.C. § 1146(a). The case arose from the bankruptcy of Piccadilly Cafeterias, Inc. At one time among the nation's most successful cafeteria chains, Piccadilly had fallen on hard financial times. In 2003, Piccadilly filed for Chapter 11 bankruptcy protection in the Southern District of Florida.
The New York Insurance Department, as Liquidator of Nassau Insurance Company, pursued Jeanne Diloreto for 20 years to recover what it contended were assets diverted from Nassau, recovering a judgment in state court that it attempt to execute upon. Superintendent DiNallo ended up filing an involuntary bankruptcy petition against Ms. Diloreto, which was dismissed, in part based upon procedural infirmities.
The U.S. Court of Appeals for the Fifth Circuit reversed a bankruptcy court’s equitable subordination order on June 20, 2008. Wooley v. Faulkner (In re SI Restructuring, Inc.), ____ F.3d __, 2008 WL2469406 (5th Cir. 2008). According to the court, subordination of the insiders’ secured claims was “inappropriate” because the bankruptcy trustee had failed to show that the defendant insiders’ “loans to the debtor harmed either the debtor or the general creditors.” Id., at *1. The court also rejected the trustee’s “deepening insolvency” argument on the facts and as a matter of law.
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
Given the state of the economy, it will not be a rare occurrence in the short term for a supplier to receive a request to sell and deliver further goods to a purchaser who has filed proceedings under the Companies Creditors Arrangement Act (CCAA) or Chapter 11 of the United States Bankruptcy Code — and who is already indebted for unpaid pre-filing sales.
On May 23, 2008, in American Home Mortgage Investment Corp. v. Lehman Bros. Inc.(In re American Home Mortgage Corp.),1 the United States Bankruptcy Court for the District of Delaware ruled that BBB-rated mortgagebacked notes are eligible for the Bankruptcy Code’s repurchase agreement safe harbor as “interests in mortgage loans”.
Many of the cases we have reported on continue to be hotly debated among the parties and are subject to appeals or motions for reconsideration. In an effort to keep you updated, we have highlighted some of these developments below.
Musicland
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.
The November/December 2007 issue of Insolvency Notes featured an article highlighting a Manhattan-based federal bankruptcy court's refusal to officially recognize proceedings commenced in the Cayman Islands to liquidate two Bear Stearns-managed hedge funds that collapsed in June of that year.