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September 2013 Archives

Bakersfield Bankruptcy Court Closes Temporarily

The U.S. Marshal Service has informed the bankruptcy court that temporary staffing vacancies preclude adequate security for the Bakersfield Bankruptcy Court, and the situation is likely to persist for several months.  Accordingly, the court is closed, all Bakersfield bankruptcy matters will be heard in the Bakersfield Federal Courthouse at 510 19th Street in Bakersfield, California or in the Fresno U.S. Bankruptcy Court.Judge Lee’s current Bakersfield Calendars are here:  October 2 and October 3.Judge Clement’s current Bakersfield Calendar is here: September 26.

The Commercial Law and Bankruptcy Section present - " Don't Take it PERS-onally: Chapter 9 Municipal Bankruptcy as a Game Changer," October 8, 2013

On Tuesday, October 8, 2013, please join members of Macdonald Fernandez from 12-1:30 p.m. in their attendance of "Don't Take it PERS-onally: Chapter 9 Municipal Bankruptcy as a Game Changer," at Le Meridien Hotel.

Detroit Retirees and Unions Say Municipal Bankruptcy Unconstitutional

A line in the Michigan state constitution provides that public worker pensions cannot be undone.  Detroit unions have joined a committee of retirees seeking to end Detroit's bankruptcy case on these and other grounds.  They intend to depose Michigan's governor Rick Snyder as to his role in authorizing the bankruptcy.  It will be interesting to see how tensions between federal preemption and state sovereignty are resolved in the context of a Chapter 9 bankruptcy.

Senator Requests Probe of U.S. Trustee Attorney's Fees Initiative

Senator Chuck Grassley (R-Iowa) has requested a probe of the U.S. Trustee's initiative to overhaul how counsel is compensated in large chapter 11 cases. On November 1, 2013, new rules for attorney pay in large chapter 11 cases go into effect.  The U.S. Trustee hopes the guidelines will dispel the perception that lawyers take advantage of large corporate bankruptcy cases to charge expensive fees of $1,000 per hour or more.  In a letter yesterday, Senator Grassley asked the U.S. Government Accountability Office to review whether the new fee guidelines will “prevent excessive fees in the future and, if not, whether legislation is needed to address this problem.”

The new guidelines will be discussed in a Bar Association of San Francisco program set for today.  Click here to register.

Diocese of Stockton Considers Bankruptcy

Quick Update:  The Diocese of Stockton, California, of the Catholic Church, is considering filing for bankruptcy protection amid costly settlements with sex-abuse victims.  It would become the tenth Diocese in the U.S. to do so.  Bishop Stephen Blaire announced that “options other than filing for bankruptcy protection have not emerged.”

AnchorBank's Holding Company Tries New Bankruptcy Strategy

A bank holding company typically files bankruptcy after the FDIC takes over its bank subsidiary, when the only task left is to marshal assets and liquidate. Anchor BanCorp, holder of AnchorBank, is trying something new.

Specifically, Anchor BanCorp filed a chapter 11 bankruptcy petition on August 12, 2013, before a takeover of AnchorBank, which may be avoided in light of the bankruptcy.  Anchor BanCorp proposes a genuine restructuring in which it would pay off more than $180 million in debt owed to other banks for just $49 million; it could convert the U.S. Treasury’s preferred stock into an equity stake worth about $6 million (the bank received $100 million in TARP funds); and it would recapitalize by canceling its existing shares and sell the remaining new equity to investors.  The bankruptcy court approved the plan last week, but regulators still need to sign off.

If successful, Anchor BanCorp could provide a model for other struggling regional banks to get ahead of the FDIC and take control of their own restructuring.


IRS Penalties for Late Filed Corporate Tax Returns are NotAdministrative Expenses

The Ninth Circuit Bankruptcy Appellate Panel has ruled that penalties imposed by the Internal Revenue Service for untimely filing corporate tax returns were not administrative expenses.  In Kipperman v. Internal Revenue Service (In re 800ideas.com)13 C.D.O.S. 9790, BAP No. SC-12-1496-JuBaPa (9th Cir. BAP July 22, 2013), chapter 7 trustee Richard M. Kipperman appealed from the bankruptcy county's order allowing the penalties as an administrative expense necessary for preservation of the debtor's estate pursuant to Bankruptcy Code Section 503(b)(1)(A).  The BAP disagreed and remanded the case to bankruptcy court for determination of whether the penalties qualify as administrative expenses for other reasons.  

Specifically, the BAP noted that the case was a chapter 7 case.  Accordingly, the penalties were not incurred in the operation of a business and, as a result, the penalties were incurred neither to benefit the estate nor preserve it.  Moreover, the failure to timely file tax returns did not constitute a post-petition tort under Reading Co. v. Brown, 391 U.S. 471 (1968).

It is important to timely file estate tax returns or comply with procedure to excuse the filing requirement (the opinion has a good review of certain new procedures).  Nevertheless, the upshot of this case is that penalties for late filing are not entitled to administrative priority on the grounds advanced by the IRS and are apparently limited to general unsecured claims.


Bankruptcy Court May Handle Compensation for Victims in Lac-Magantic Train Crash

Montreal, Maine and Atlantic Railway, owner of the runaway freight train that crashed in Lac-Megantic, Quebec, killing 47 people, filed for Chapter 11 bankruptcy protection in Bangor, Maine, and Canada on August 7, 2013.  Last month, the railway asked Bankruptcy Judge Louis Kornrich to appoint a committee to represent wrongful death and personal injury claimants, seeking to avoid the burdens of handling dozens of individual lawsuits. The estates of 33 of the victims joined in supporting the motion.  The railway is likely to be sold in the course of bankruptcy proceedings, reported the Maine Sun Journal.

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