Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

Purchasers' Ability to Preserve Tax Attributes in Context of ' 363 Sales

By Sunni P. Beville and Vincent J. Guglielmotti

This article addresses a growing trend in bankruptcy sales whereby purchasers decline to effectuate an asset purchase under Bankruptcy Code ' 363, and instead, acquire the debtor's stock by sponsoring a reorganization plan designed to preserve valuable tax attributes. Generally, as an alternative to effectuating an asset purchase under Bankruptcy Code ' 363, a reorganization plan permits certain qualified creditors to acquire the stock in a reorganized debtor in exchange for satisfaction of their prepetition claims and an additional cash infusion. The alternative reorganization plan enables the reorganized debtor to avoid a limitation on the ability to use previously generated net operating losses (“NOLs”) under Section 382 of the Internal Revenue Code of 1986, as amended (the “Tax Code”), and, thereby, preserve the debtor's previously generated NOLs which may offset future taxable income. The transaction structure typically includes a winning cash bid for a contingent sale of substantially all of the assets by a qualified creditor. The contingent asset sale is effectuated only in the event the qualified creditor is unable to sponsor a reorganization plan under which the qualified creditor acquires a majority of the common stock of the reorganized debtor. The transaction combines the certainty of a Bankruptcy Code ' 363 “cash for assets sale” with the potential for increased recovery due to the additional value associated with the preservation of NOLs (in the event the contingent asset sale is not consummated and the alternative plan of reorganization is approved).

Brief Primer on Net Operating Losses and Tax Code Section 382

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Bankruptcy Sales: Finding a Diamond In the Rough Image

There is no efficient market for the sale of bankruptcy assets. Inefficient markets yield a transactional drag, potentially dampening the ability of debtors and trustees to maximize value for creditors. This article identifies ways in which investors may more easily discover bankruptcy asset sales.

Judge Rules Shaquille O'Neal Will Face Securities Lawsuit for Promotion, Sale of NFTs Image

A federal district court in Miami, FL, has ruled that former National Basketball Association star Shaquille O'Neal will have to face a lawsuit over his promotion of unregistered securities in the form of cryptocurrency tokens and that he was a "seller" of these unregistered securities.

Why So Many Great Lawyers Stink at Business Development and What Law Firms Are Doing About It Image

Why is it that those who are best skilled at advocating for others are ill-equipped at advocating for their own skills and what to do about it?

Blockchain Domains: New Developments for Brand Owners Image

Blockchain domain names offer decentralized alternatives to traditional DNS-based domain names, promising enhanced security, privacy and censorship resistance. However, these benefits come with significant challenges, particularly for brand owners seeking to protect their trademarks in these new digital spaces.

Coverage Issues Stemming from Dry Cleaner Contamination Suits Image

In recent years, there has been a growing number of dry cleaners claiming to be "organic," "green," or "eco-friendly." While that may be true with respect to some, many dry cleaners continue to use a cleaning method involving the use of a solvent called perchloroethylene, commonly known as perc. And, there seems to be an increasing number of lawsuits stemming from environmental problems associated with historic dry cleaning operations utilizing this chemical.