Liquidating trustee

22-Jul-2018 16:36 by 4 Comments

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In the United States, Chapter 11 is a useful tool for businesses.

Six months later, the liquidating trustee filed a request with the IRS for the same refund, which was not acted upon by the IRS. During the case, a Chapter 11 trustee was appointed while Sentinel’s business was being wound down.Pursuant to the confirmed plan, the Chapter 11 trustee became the liquidating trustee of the post-confirmation Sentinel Liquidation Trust (the “Liquidation Trust”). Bond has not been followed in any other circuit, and seems diametrically opposed to existing precedent in the Fifth and Sixth Circuits. Both the Fifth and Sixth Circuits previously held that Section 505(a)(2)(B) was merely a timing requirement, not a jurisdictional bar, and permitted the adjudication of refund suits predicated on claims filed by persons other than a “trustee.” Gordon Sel-Way Inc. While the term is not defined in Section 505, the Second Circuit interpreted “trustee” to mean only a bankruptcy trustee appointed before confirmation of a plan as described in 11 U. Accordingly, while the liquidating trustee could still have filed a tax refund suit against the IRS, it had to do so in a parallel civil action in federal district court.

The Second Circuit’s decision hinged on the use of the term “trustee” in § 505(a)(2)(B). Because the refund claim had been filed by the liquidating trustee, the Second Circuit held that the bankruptcy court lacked jurisdiction to adjudicate that claim. Gordon Sel-Way looked to the legislative history of Section 505 to find it was not intended to restrict jurisdiction only to claims brought by trustees because it “authorizes the bankruptcy court to rule on the merits of any tax claim involving an unpaid tax, fine, or penalty relating to a tax, or any addition to a tax, of the debtor or the estate.” Gordon Sel-Way Inc. In a recent adversary proceeding in California, the IRS contended that Section 505(a)(2)(B) precluded the bankruptcy court from adjudicating a tax refund suit brought by a liquidating trustee.

The Supreme Court affirmed the lower court decision that the Chapter X Trustee lacked the requisite standing to prosecute these claims during the bankruptcy case. was whether a post-confirmation liquidating trustee of a liquidation trust created under a confirmed plan can prosecute creditors’ direct claims (as opposed to estate claims) assigned to it as provided in the plan. On review, the Seventh Circuit first addressed the flaws in BNYM’s jurisdictional objections, noting that many of the investors were not residents of New York and their claims exceeded ,000, thus providing a basis for diversity jurisdiction.

In , the Supreme Court identified three reasons for not allowing a bankruptcy trustee to assert the third-party claims of individual investors: First, the court held that the Bankruptcy Act of 1898 did not give a trustee such a power, nor did it give bankruptcy judges the power to transfer third-party claims to a trustee. On appeal, BNYM raised two threshold objections, arguing that the trustee had engaged in collusive maneuvering of jurisdiction and that the trustee lacked authority to pursue the litigation. The Court also noted that the investors could have sued BNYM as a class.

The only two circuits to address this issue rejected the IRS’ position.

Before Bond, liquidating trustees had no reason to doubt the bankruptcy court’s jurisdiction over a suit predicated on a refund claim filed after confirmation.

The approval of ISG in this role represents the confidence of the commercial bankruptcy legal community and the federal courts in ISG and its team of specialists.

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