► In This Issue:

• Tax-Sharing Agreements and Property of the Estate: Choose Your Language Wisely
• Rejection Pursuant to § 365(h) and (n): Counterparty Protection or Paper Tiger?
• Let’s Keep This Between Us: Protecting PII in Bankruptcy Sales
• Committees to Discuss the New Requirements for Tax Sharing Agreements
• New Book on Liquidation & Litigation Trusts

Tax-Sharing Agreements and Property of the Estate: Choose Your Language Wisely

Blake D. Roth Waller Lansden Dortch & Davis Nasville, TN

Every dollar counts, and for debtors that are party to tax-sharing agreements (“TSAs”), significant dollars may be at stake. As the Sixth and Ninth Circuit Courts of Appeals have demonstrated, when dealing with tax refunds and TSAs, it is not always clear that a debtor’s estate is entitled to every dollar.

In re IndyMac Bancorp Inc.
In FDIC v. Siegel (In re IndyMac Bancorp Inc.), the Ninth Circuit Court of Appeals affirmed the decision of a district court, holding that certain tax refunds were property of IndyMac Bancorp Inc.’s bankruptcy estate. IndyMac Bancorp Inc. was the holding company for IndyMac Bank F.S.B. (the “bank”), which was under a Federal Deposit Insurance Corp. (FDIC) receivership. IndyMac and the bank were party to a TSA, and after IndyMac entered bankruptcy, a dispute arose over the extent to which a tax refund was property of IndyMac’s bankruptcy estate. The U.S. District Court for the Central District of California adopted the report and recommendation of the U.S. Bankruptcy Court for the Central District of California and declared that more than $55 million in tax refunds were property of IndyMac’s bankruptcy estate. The FDIC, as receiver for the bank, appealed.
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Rejection Pursuant to § 365(h) and (n): Counterparty Protection or Paper Tiger?

Robert K. Dakis Morrison Cohen, LLP New York

Joseph T. Moldovan Morrison Cohen, LLP New York

Neil Y. Siegel Morrison Cohen, LLP New York

One of the fundamental rights afforded to a debtor is the right to reject burdensome contracts and unexpired leases. However, where the debtor is the lessor of real property or the assignor of intellectual property, rejection of the underlying agreement could be catastrophic to the nondebtor counterparty. Recognizing the potential prejudice to contract counterparties, Congress incorporated provisions into the Bankruptcy Code (§§ 365(f) and 365(n)) that permit these affected nondebtor parties to continue to use the leased properties for the life of the term, if they so choose.

However, this protection for nondebtor counterparties potentially interferes with another fundamental right afforded to debtors — namely the right to sell assets free and clear of all liens, claims, and interests under § 363(f). As a pair of recent chapter 11 decisions from the U.S. Bankruptcy Court for the District of New Jersey illustrate, courts continue to struggle with the tension between a debtor’s § 363 rights and its nondebtor contractual counterparty’s § 365 rights.

Sections 365(h), 365(n) and 363(f):
A Brief Primer: Section 365 of the Bankruptcy Code permits a debtor to “reject” burdensome contracts and unexpired leases. In essence, rejection relieves a debtor of the obligation to continue performing under an executory contract by converting the debtor’s unfulfilled obligations to a (pre-petition) damages claim. However, it does not terminate the contract. Following rejection, the contract counterparty is not permitted to seek to enforce the agreement; instead, the counterparty&rss rights will be reduced to a money claim in the bankruptcy for breach.

In order to protect the property interests of nondebtors who lease real property from a debtor, Congress incorporated § 365(h), which gives the nondebtor a choice following the debtor’s rejection of an unexpired lease: A tenant can either accept money damages or remain in possession of the property for the natural term of the lease, plus any extensions. However, the debtor is relieved from any obligations under the agreement other than the obligation to permit use of the property.

Section 365(n) affords similar protection to the licensee of intellectual property. Much like its analog provision (§ 365(h)), a lessee of intellectual property from the debtor is given the choice of either damages or continued use of the intellectual property post-rejection for the term of the agreement. Again, the debtor is relieved of the obligation to provide any services to the lessee post-rejection.
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Let’s Keep This Between Us: Protecting PII in Bankruptcy Sales

by Steven W. Golden Drinker Biddle & Reath LLP; New York; LL.M. Candidate

Privacy issues are not new to corporate reorganizations; §§ 322 and 363(b)(1) were enacted as part of BAPCPA precisely to address such concerns. In an increasingly digital age, reorganizing debtors may possess a slew of personally identifiable information (PII), itself a term defined at § 101(41A). These issues have come to the forefront in connection with the recent ConnectEDU bankruptcy and asset sale.

What happened in ConnectEDU?
ConnectEDU is an education technology company principally focused on post-secondary education planning for students. As such, ConnectEDU and its co-debtor subsidiaries, possessed substantial amounts of students’ PII. To protect such information, ConnectEDU’s Privacy Policy states, in pertinent part, that “[i]n the event of sale or intended sale … ConnectEDU will give users reasonable notice and an opportunity to remove personally identifiable data from the service.”
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Committees to Discuss the New Requirements for Tax Sharing Agreements

The Business Reorganization Committee will be teaming up with the Bankruptcy Taxation and Young & New Members committees at this year’s Annual Spring Meeting to discuss new requirements for tax sharing agreements and how they impact banks and holding companies. Speakers for this panel include Richard J. Corbi ​of the U.S. Bankruptcy Court, Eastern District of New York; Brooklyn; Jeffrey Schmitt of the Federal Deposit Insurance Corporation in Washington, D.C.; Todd Meyers of Kilpatrick Townsend & Stockton LLP in Atlanta; and Whitman Holt of Klee, Tuchin, Bogdanoff & Stern LLP in Los Angeles.

Join us on April 16 at the Renaissance Washington D.C.!

In the video above, Steven C. Krause (Owl Creek Asset Management, L.P.; New York) previews the issues to be covered in the What Do Clients Really Want? panel at the Annual Spring Meeting.

New Book on Liquidation & Litigation Trusts

The Practitioner’s Guide to Liquidation and Litigation Trusts is now available for preorder at the ABI Bookstore. The Guide gives bankruptcy and other professionals an overview of how and when trusts can be used to handle significant large-scale litigation matters and the liquidation of other assets for the purpose of accumulating recoveries and distributing them across multiple claimants, and includes over 500 pages of documents pulled from major trust cases. Order your copy here.