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We continue to be impressed how recurring issues confront the courts to interpret the Bankruptcy Code — conflicts between bankruptcy and other federal policies, addressing the plain meaning of statutory provisions, and determining when a claim arises under the bankruptcy code. Where tax liabilities are involved, one can anticipate tension between bankruptcy policy objectives and federal tax policy. So when does a tax liability claim arise in a bankruptcy case? If a tax claim accrues prior to the petition date, it may be a prepetition unsecured claim. If it arises after the bankruptcy filing, it may qualify for priority treatment as an administrative expense of the bankruptcy estate, and must be paid in full before distribution to holders of unsecured claims. This is not a trivial matter. The issue was recently addressed by the U.S. District Court for the District of Delaware in In re Affirmative Insurance Holdings, Civ. Case No. 19-2034-RGA (July 27, 2020). Judge Richard Andrews, sitting as an appellate court reviewing a decision of the bankruptcy court, ruled that federal income taxes for the year in which a debtor files for bankruptcy are entitled to priority treatment as administrative expenses when the end of the taxable year occurred after the bankruptcy petition date. The court noted that the issue of how to treat a “straddle year” for federal income tax under the Bankruptcy Code has not been decided by any appellate court.
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By Eva D. Gadzheva, Jeremy M. Downs and David E. Morrison
This article reminds us of the conflict-of-laws analysis at the heart of such retention of title disputes, and then discuss the multi-step UCC analysis that is also required.
By Michael L. Cook
The Second Circuit applied federal bankruptcy law when holding that good faith is an affirmative defense.
By Thomas R. Califano and Anna Gumport
Members of Congress recently introduced the Nondebtor Release Prohibition Act, which proposes to amend the Bankruptcy Code to, among other things, restrict courts’ ability to approve third-party releases of nondebtors and related injunctions under plans of reorganization or otherwise in Chapter 11 cases.
By Steven B. Smith and Rachel Ginzburg
If you think public policy favoring the freedom to file a Chapter 11 trumps the freedom to negotiate specific restrictions to such a filing, think again.