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Chapter 11 Transfer Tax Exemption Expanded by the Eleventh Circuit - page 7 / 8





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Section 1123 governs what a plan "shall" and "may" contain. While section 1123(b)(4)

expressly states that a plan may "provide for the sale of all or substantially all of the property of

the estate," the statute says nothing about transactions involving non-estate property and non-

debtors. One may argue that the catchall in section 1123(b)(6) that a plan may provide for

"any other appropriate provision not inconsistent with the applicable provisions of this title"

may be sufficient to capture non-debtor transactions. However, at least one provision of the

Bankruptcy Code may be argued to be inconsistent with the concept of conferring substantive

bankruptcy entitlements on non-debtors in connection with transactions involving assets of non-

debtors section 524 clearly states that a debtor's discharge does not "affect the liability of any

other entity on, or property of any other entity for, such debt." This entire analysis was not

pursued by the Eleventh Circuit. Thus, one important component of a complete substantive and

defensible argument for authorizing a bankruptcy court to confer tax-exempt status on a

transaction that does not involve the debtor or the debtor's property is absent from the Eleventh

Circuit's analysis.

That brings us to the strategic implications of T.H. Orlando. Having dramatically expanded the

potential reach of section 1146(c), the ruling invites all manner of creative tinkering with chapter

11 plans with the goal of structuring asset transfers and related transactions in such a way that

they can be characterized, rightly or wrongly, as "necessary to the consummation" of a plan of

reorganization. Such machinations will only make life harder for bankruptcy judges called upon

to adjudicate the confirmability of a chapter 11 plan. As such, T.H. Orlando may act as a

catalyst to Supreme Court review of the issue.


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