January 10, 2000
Supreme Court to Clarify Bankruptcy Law on Collecting Back
Taxes
On Friday the Supreme Court agreed to clarify how difficult it
should be for states to collect money from debtors who owe back taxes,
the Associated Press reported. A decision is expected in late June on
Raleigh v. Illinois, 99-387. An Illinois dispute over sales tax
owed on a $12 million jet focuses on the narrow issue of who bears the
'burden of proof' in certain bankruptcy cases. The issue has nationwide
implications, and nine states urged the Supreme Court to address the
problem. William J. Stoecker was president and the sole director of
Chandler Enterprises Inc. when the corporation bought a Falcon 50
airplane from an out-of-state seller in 1988. The corporation did not
register the plane with the Illinois Department of Aviation, so years
had passed when the state determined that Chandler owed more than
$900,000 in taxes and interest. By then, Chandler had ceased to exist
and Stoecker had filed for bankruptcy protection. The state tried to
collect a penalty from the bankruptcy trustee for Stoecker's estate, but
a judge ruled that the trustee could not be forced to pay, stating that
the government had the burden of proving that Stoecker, as a
'responsible officer' of Chandler, willfully failed to pay the tax. The
Seventh U.S. Circuit Court of Appeals reversed the ruling and stated
that Stoecker had the burden to prove that he did not willfully avoid
paying the state sales tax. Stoecker's trustee then appealed to the
Supreme Court. Attorneys for California, Montana, New Mexico, North
Dakota, Ohio, Oklahoma, Oregon, South Dakota and Vermont argued to the
court that the 'current split of authority could wreak havoc on state
tax administration and promote forum shopping in tax cases.'
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Small Businesses Balk at Tax Law Provision
The National Federation of Independent Businesses (NFIB) and
some other industry groups are trying to undo a provision in the tax
extenders bill (H.R. 1180--PL 106-170) that President Clinton signed
Dec. 17, CQ Daily Monitor reported. The NFIB, the Small
Business Legislative Council and others had believed that the provision,
which would prohibit businesses that use accrual accounting methods from
selling assets in installments and spreading out their tax liability,
would have no meaningful impact on most of their members, and that only
large companies would be affected. But a number of small business owners
have learned that they will have to restructure long-planned sales of
their companies as a result of the new law, and now lobbyists are
scrambling to persuade Congress to nullify the changes. They are urging
a repeal of the provision and asking that the Treasury Department issue
notices clarifying the intent of the language. The NFIB said the
provision could affect 200,000 small business owners, many of whom
arrange to sell their businesses to a new owner over a period of years.
Disallowing installment-sale treatment could reduce the sale price of a
business by 10 percent or more.
Checkers of Chicago Discontinues Operations and Files Chapter
7
Checkers Drive-in Restaurants Inc., Clearwater, Fla., announced
Friday that its subsidiary, Checkers of Chicago Inc., a Delaware
corporation, has discontinued operations in the Chicago area and filed
for chapter 7 protection, according to a newswire report. Checkers of
Chicago had operated eight restaurants as a general partner of certain
limited partnerships and three restaurants which it owned; all are
closed now. The company expects a trustee will be appointed today to
distribute the assets to creditors. CEO Daniel Dorsch said, 'This action
was necessary in light of the significant ongoing losses being sustained
at the locations operated by our Checkers of Chicago subsidiary. 'The
company also said that the nearly 1,000 other Checkers and Rally's
restaurants are not affected by the filing.
Applied Magnetics Files Chapter 11
Applied Magnetics Corp., Goleta, Calif., filed for chapter 11
protection in Santa Barbara, Calif., on Friday, according to a newswire
report. Operations at the Goleta facility have been discontinued, and
most employees there have been laid off. The company expects to continue
limited operations in Malaysia and Korea in order to fulfill existing
customer commitments, and Applied Magnetics will seek new financing to
resume full operations. An independent manufacturer of magnetic
recording heads, head-gimbal assemblies (HGAs) and headstack assemblies
(HSAs) for computer hard drives, the company was founded in 1957. CEO
Craig Crisman said that during the last two years, excess capacity and
slower demand from the hard disk drive industry have hampered the
company's efforts.
V Companies, VS Architects File Chapter 11
The V Companies and VS Architects Inc., commonly known as the V
Group, filed chapter 11 late Friday in order to allow the firms to
recover from the cost of litigation involving their role in the design
and construction observation of the Jefferson County Jail in
Steubenville, Ohio, according to a newswire report. Paul V. Voinovich,
owner of both companies, said, 'A long list of companies, including
several in Northern Ohio, resurrected under chapter 11 reorganization
and are now flourishing. We plan to do the same. 'He also said the
filing would have no effect on the company's capability to meet
commitments to customers and employees. In December a jury returned a
$13.3 million judgment against the two companies involving their
contracts for design and as architect's project representative for the
jail's construction. Voinovich said the companies disagree with the
verdict and will continue pursuing their legal rights.
Court Approves Rescission of Shares of Stock
WasteMasters Inc. announced Friday that the bankruptcy court
overseeing Continental Investment Corp.'s bankruptcy approved the
agreement to rescind a prior purchase agreement in which Continental
acquired 5 million shares of the company's preferred stock and 4.5
million shares of its common stock, according to a newswire report. The
agreement had been previously announced pending approval from the court.
Parties have 10 days to appeal the decision of the court, but no appeal
is expected. Closing on the rescission agreement will occur 10 days
following the appeal period. WasteMasters will return shares it holds in
Continental and one of its subsidiary, Continental Technologies Corp.,
and pay $590,000 to Continental. WasteMasters will receive an operating
landfill in Rye Creek, Mo., that was included in the original
transaction.
Fruit of the Loom to Repay $65 Million Loan to Chairman
Fruit of the Loom Inc.'s pre-bankruptcy debt of about $1.6
billion includes a guaranty to repay a $65 million secured personal bank
loan made in March to Chairman William Farley, according to a newswire
report. District of Delaware Chief Bankruptcy Judge Peter Walsh signed
orders Dec. 30 that detail the loan and the rest of the debt. Farley had
agreed to repay the company for the secured loan from Bank of America
and Credit Suisse First Boston in March. In August, Farley resigned as
president and CEO. Fruit of the Loom and its 33 affiliates filed chapter
11 on Dec. 29. Fruit of the Loom bankruptcy attorney Mark
Thomas of Katten Muchin Zavis, Chicago, said the loan to Farley
had been fully disclosed.
Cadet Manufacturing to Recall Electric Heaters on Court's
Approval
Cadet Manufacturing, a Vancouver, Wash., company, announced
that it will began a recall of 1.9 million electric heaters blamed for
house fires and three deaths as soon as the bankruptcy court and the
Consumer Product Safety Commission approve the recall, according to the
Associated Press. Cadet filed chapter 11 in January 1999, citing
pressure from a 1997 class action lawsuit. It is expected the recall
will take place the first week of February. Cadet plans to recall the
heaters and sell customers replacement units at a reduced cost. Founded
40 years ago, Cadet had $23 million in sales in 1998, but sales dropped
to $16 million last year with the bankruptcy filing.
Moody's Reports Bankrupt Bond Index Down in December But Up
in 1999
Moody's Investors Service reported that the telecom/cable
inspired rally that sent bankrupt bonds up 12.6 percent in November
dropped in December as Moody's Bankrupt Bond Index (MBBI) fell 6.6
percent. Despite finishing the year with a down month, the MBBI eked out
a 3.9 percent gain for the year, substantially better than 1998's 28
percent loss. The MBBI is a monthly price index that measures the return
of a broad cross-section of long-term public debt issues of corporations
that have filed for bankruptcy. Of the four telecom/cable issues that
led the November rally, only two showed continued improvement in
December. Growth in the number of bankruptcies continued to slow in
December. There was just one net addition to the number of issuers
included in the MBBI, but it brought the total to 88, which set another
record for the number of bankrupt issuers in the index. The total face
amount of bankrupt debt included in the MBBI hit an all-time high at
$19.4 billion.
Leading California Firm Opens New Delaware Office
Los Angeles Pachulski, Stang, Ziehl & Young, one of the
largest bankruptcy boutiques in the country, has added prominent
bankruptcy specialist Laura Davis Jones, who will open the firm's
new office in Wilmington, Del. This expands the firm's national practice
with a permanent presence on the East Coast. Now named Pachulski, Stang,
Ziehl, Young & Jones P.C.,
target='_parent'>the firm will continue to focus on bankruptcy,
litigation and transactions, as well as business reorganizations and
workouts nationwide. Firm co-founder Richard Pachulski said, 'Laura
Davis Jones is the number-one bankruptcy attorney in the number-one
corporate bankruptcy district in the country, and brings extremely
valuable expertise for our clients. Previously she was a senior partner
with Wilmington-based Young Conway Stargatt & Taylor LLP.
Court Confirms Florida Coast Paper's Reorganization Plan
On Jan. 5, the U.S. Bankruptcy Court in Wilmington, Del., confirmed
Florida Coast Paper Holding Co.'s joint chapter 11 plan of
reorganization submitted by the linerboard mill operator, its affiliates
and an ad hoc committee of holders of 12.75 percent first mortgage notes
due 2003, yet it did so under fairly extraordinary circumstances.
According to counsel to an ad hoc committee of noteholders, the joint
plan had the requisite dollar amount of favorable votes, but a majority
number of the noteholders voted against the plan. Therefore, the plan
had to be crammed down on the noteholder class. Unusually, the
noteholders thus were proponents of both the plan and the cramdown.
Courtesy of
href='http://www.fedfil.com/bankruptcy/developments.htm'>The
Daily Bankruptcy Review Copyright ©
January 10, 2000..
