Barnes & Thornburg LLP; Chicago
About the Author: Deborah Thorne is a partner in the Chicago office of Barnes & Thornburg and is an ABI Board member.
In an effort to protect suppliers who sell goods in the days leading up to a customer's bankruptcy, Congress has, via §503(b)(9) of the Bankruptcy Code, carved out special treatment for claims made by creditors who sell and deliver goods to a debtor during the 20 days before a debtor's filing. Although the motive is understandable, the effect on chapter 11 cases has been problematic-in numerous cases, confirmation of a plan is now unattainable, and the new rules have led to manifest disputes between vendor/creditors, many of whom are seeking this special treatment for their claims, and debtors who must obtain funding for and apply this new provision within the existing framework of the Code.
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by: Deborah T. Crowder
Poyner Spruill LLP; Charlotte, N.C.
Last June, the Supreme Court decided the case of Florida Department of Revenue v. Piccadilly Cafeterias Inc., which dealt with a disputed tax exemption on an asset sale. Section 1146(a) of the Bankruptcy Code provides a stamp-tax exemption for any asset transferred under a plan confirmed under chapter 11.
Before Piccadilly's plan was submitted to the bankruptcy court, that court authorized Piccadilly to sell certain assets. The settlement agreement granted Piccadilly an exemption under 11 U.S.C. §1146(a), and the bankruptcy court had ruled that the transfer of assets was exempt from stamp taxes under §1146(a). After the sale was complete, Piccadilly filed its chapter 11 plan, but before it was confirmed the Florida Department of Revenue filed an objection, arguing that the stamp taxes it had assessed on certain transferred assets fell outside §1146(a)'s exemption because the transfer had not been under a confirmed plan. The district court and the Eleventh Circuit affirmed, with the latter holding that §1146(a)'s exemption applies to preconfirmation transfers necessary to the consummation of a confirmed chapter 11 plan, provided there is some nexus between such transfers and the plan; that §1146(a)'s text was ambiguous and should be interpreted consistent with the principal that a remedial statute should be construed liberally; and that this interpretation better accounted for the practicalities of chapter 11 cases because the debtor may need to transfer assets to induce relevant parties to endorse a proposed plan's confirmation.
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The Winter Leadership Conference was held at the beautiful Westin La Paloma in Tucson, Dec. 4-6. This year's conference featured an interesting and informative group of sessions and speakers. In the Unsecured Trade Creditors Committee session, "Committee Professionals: A Different Standard?," panelists discussed the stringent rules and ethical concerns that appointment to a creditor's committee brings with it as well as professional conduct rules in the state of California. The panel included Roberta A. DeAngelis, Acting U.S. Trustee of Region 3 in Philadelphia, Scott L. Hazan of Otterbourg, Steindler, Houston & Rosen, P.C. in New York and Jeffrey N. Pomerantz of Pachulski Stang Ziehl & Jones L.L.P. in Los Angeles. Frances Gecker of Frank/Gecker LLP in Chicago moderated. Please click here to review the materials.
