Taxing Authority May Not Assert Sovereign Immunity in Post-sale Proceeding to Determine the Estate’s Tax Liability
by Jordi Guso Esq., Berger Singerman P.A., Miami, Fla.
The U.S. Bankruptcy Court for the Southern District of Florida recently held that a county taxing authority may not invoke sovereign immunity as a defense to a debtor’s request for a determination of its tax liability, where the property upon which the taxing authority asserts a lien was sold pursuant to §363(f) of the Bankruptcy Code, and the lien of the taxing authority attached to the proceeds of the sale. In re Lake Worth Generation, LLC, 2004 Bankr. LEXIS 2040 (Bankr. S.D. Fla. Dec. 9, 2004) (Paul G. Hyman Jr., Judge). Applying the Supreme Court’s recent ruling in Tennessee Student Assistance Corporation v. Hood (In re Hood), 541 U.S. 440, 158 L. Ed. 2d 764, 124 S.Ct. 1905 (2004), the Lake Worth court held that it has exclusive jurisdiction over property of the estate, even after the estate is monetized. The res created following the sale rendered the debtor’s request for a determination of its tax liability an in rem proceeding in which sovereign immunity is not available.
Protecting Trading Markets and NOLs in Chapter 11
by James L. Bromley, Kristofer Hess and Joseph Lamport; Cleary Gottlieb Steen & Hamilton LLP; New York
Originally printed in the February 2005 ABI Journal.
The Bond Market Association (BMA) and the Loan Syndications and Trading Association (LSTA) have jointly drafted a model order for use in chapter 11 proceedings to protect a debtor’s net operating losses (NOLs) without unduly restricting trading in unsecured claims during the pendency of a company’s bankruptcy case (Model NOL Order). The project was motivated by the disruptions to the debt-trading markets that have been increasingly caused by restrictive NOL orders entered by bankruptcy courts at the request of debtor corporations in large chapter 11 cases. Recent examples of large cases where such orders have been entered are UAL, US Airways, Mirant, Conseco and WorldCom. These orders are intended to protect the debtors’ ability to utilize NOL carryovers to offset future tax liability. In many instances, however, the effect of the orders has been to halt or seriously restrict trading in the corporations’ debt and to require investors to expend significant time in an effort to understand and negotiate the scope of the restrictions.
Committee Appoints New Chairs
ABI is pleased to announce the appointment of two new co-chairs for the Tax Committee: David H. Stein of Duane Morris (Newark, N.J.) and Patricia L. Barsalou of Fulbright & Jaworski LLP (San Antonio, Texas). If you would like to contribute to the committee e-newsletter, please send your submissions directly to David at dhstein@duanemorris.com or Patricia at pbarsalou@fulbright.com. Additionally, they are working on a presentation for the Annual Spring Meeting in Washington, D.C. Stay tuned for details.