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Chapter 11 Transfer Tax Exemption Expanded by the Eleventh Circuit - page 3 / 8

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bankruptcy court authorized the sales under section 363 and the sales occurred prior to plan

confirmation. The Fourth Circuit applied the same restrictive approach to tax-exempt asset

transfers in chapter 11, concluding that the term "under" may be construed as "[w]ith the

authorization of" a Chapter 11 plan.

A majority of lower courts subscribe to the more liberal interpretation of the statute. Advocates

of this view reason that it is more consistent with the practical realities of a bankruptcy case and

the objective of chapter 11 as a vehicle for both rehabilitating an ailing enterprise and

maximizing the value of a debtor’s assets for the benefit of its estate and creditors. Still, this

approach is by no means universally accepted among lower and appellate courts.

A related issue whether the transaction must involve the debtor and estate property to qualify

for section 1146(c)'s safe harbor was the issue recently addressed by the Eleventh Circuit in

T.H. Orlando.

Background

T.H. Orlando, Ltd. and T.H. Resorts Associates, Ltd. (collectively, "T.H. Orlando") owned three

hotels in Florida. Facing foreclosure on mortgages encumbering its hotels securing an aggregate

indebtedness that exceeded $70 million, T.H. Orlando filed for chapter 11 protection in 1997.

The mortgagee, notwithstanding the full amount of the debt, agreed to accept $23.5 million in

satisfaction of the mortgage obligations, provided the payout was made no later than August of

that year.

NYI-2182013v1

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