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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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Seventh Circuit Applies Safe Harbor to Private Securities Transaction
By Michael L. Cook
“… [T]he term ‘securities contract’ as used in [Bankruptcy Code] §546(e) unambiguously includes contracts involving privately held securities,” The Seventh Circuit held in Petr v. BMO Harris Bank, N.A.
By Lawrence J. Kotler and Elisa Hyder
In Lafferty v. Off-Spec Solutions, the U.S. Bankruptcy Appellate Panel of the Ninth Circuit held that the discharge exceptions under Section 523(a) do not apply to corporate debtors under Subchapter V of Chapter 11 of the Bankruptcy Code.
Merchant Cash Advances Could Be More Trouble Than They’re Worth
By Joseph Pack and Jessey Krehl
As small-business owners have continued to struggle in an uncertain economy, a growing number have begun the dangerous practice of relying on merchant cash advances — essentially seeking financial shelter in a lion’s den.
Biotech Industry Bankruptcy Case Update: ‘Zymergen’ and ‘Humanigen’
By Edward E. Neiger, Marianna Udem and Joo Hee Park
This Bankruptcy Case Update focuses on the recent biotech industry bankruptcy cases of Zymergen and Humanigen.