In a recent decision, the United States Supreme Court ruled that asset sales in bankruptcy that occur after plan confirmation will be exempt from certain and often potentially costly state taxes, whereas sales that occur before plan confirmation will not be so exempt. In so ruling, the Court resolved a circuit split regarding the meaning of the statutory phrase "under a plan confirmed under [Chapter 11] of the bankruptcy Code," as codified in 11 U.S.C. § 1146(a).
The case arose from the bankruptcy of Piccadilly Cafeterias, Inc. At one time among the nation’s most successful cafeteria chains, Piccadilly had fallen on hard financial times. In 2003, Piccadilly filed for Chapter 11 bankruptcy protection in the Southern District of Florida. As the centerpiece of its reorganization efforts, Piccadilly sought court authorization to sell virtually all of its assets in a § 363(b)(1) sale pursuant to a settlement agreement reached with creditors. The bankruptcy court granted this authority. In authorizing the sale, the bankruptcy court further ruled Piccadilly’s transfer of assets would be "exempt from stamp taxes under § 1146(a)." (Maj. Slip Op. at 2.) Piccadilly closed its sale on March 16, 2004.
Continue Reading United States Supreme Court Resolves Circuit Split