Business Bankruptcy News Bulletin Summary for Week of June 28

The items below are excerpted from the Business Bankruptcy News Bulletin. A full issue contains information on dozens of troubled companies, as well as informational and analysis highlights. Please visit the insideARM bookstore for information on subscribing to the Bulletin.

The Nondischarge of Corporate Taxes Under the U.S. Bankruptcy Code

Section 1141(d) of the U.S. Bankruptcy Code provides that the confirmation of a plan does not discharge a debtor, which is a corporation, from any debt incurred under false pretenses or by making false statements in writing or from a tax or customs duty with respect to which the debtor made a fraudulent return or willfully attempted to evade or defeat such a tax or custom duty.  There had been considerable opposition to this change in the code since some felt that the management of a company that was involved in a fraud is often replaced and that a provision that prohibits a nonpriority tax from being discharged limits the ability of the creditors to reorganize the debtor.  Further, as a result of the inability to restructure the bankrupt firm due to the inability to obtain a discharge of non priority taxes, it could cause less to be available for distribution.  In essence, while a criminal action could be filed against the corporate officer(s) that filed any fraudulent returns, the argument has been that creditors should not be punished because of the errors of prior management.

BANKRUPT COMPANIES

AbitibiBowater Inc., the giant newsprint manufacturer, is trying once again to sell a paper mill that it earlier closed in Lufkin, Tx., after a $20 million deal last October fell through. Abitibi is now asking that the U.S. Bankruptcy Court set a 7/28 deadline for submitting bids. A 6/30 hearing is set for considering auction procedures.

BI-LO, the grocery-store operator, arranged a deal for a $150 million credit facility through GE Capital to support both its exit from bankruptcy proceedings and future working-capital requirements. Privately-held BI-LO, based in Mauldin, S.C., has about 200 supermarkets in the Carolinas, Tennessee and Georgia.

Canwest Global Communications Corp. won approval for its bankruptcy restructuring plan from Canadian officials, allowing the newspaper publisher to emerge from protection from its creditors. The media giant will be purchased, along with its online operations, by a group of bondholders for about $1.1 billion.

Extended Stay’s auction results won approval from the U.S. Bankruptcy Court, moving the hotel company a step closer to emerging from Chapter 11 bankruptcy protection. Creditors will now vote on the plan. Earlier Starwood Capital Group LLC withdrew its objection to the sale of Extended Stay to Centerbridge Partners LP, Paulson & Co. and Blackstone Group LP for $3.9 billion. Extended Stay is operating under bankruptcy protection in the U.S. Bankruptcy Court in Manhattan, N.Y.  For more information call the court at 212-668-2780.

Magic Brands LLC is selling its Fuddruckers Inc. restaurant chain to Luby’s Inc., a Houston, Tx. operator of cafeterias, in a $61 million transaction. Luby’s was recently declared the winning bidder in an auction, beating out other suitors for the Fuddruckers chain. Magic Brands, which filed Chapter 11 in April, earlier agreed to terminate some Fuddruckers leases and shut down two dozen company-owned restaurants. The sale is expected to be okayed by the U.S. Bankruptcy Court on 6/22, and the acquisition should be wrapped up within several weeks.

South Bay Properties LLC, Raleigh, N.C., filed Chapter 11 in the U.S. Bankruptcy Court for the Eastern District of North Carolina. The firm listed assets of between $1 million and $10 million and liabilities of between $10 million and $50 million. The filing was under case number 10-04922. For more information contact the court at 866-222-8029, then enter 12.

Texas Rangers Baseball Partners is scheduled to receive a ruling from the U.S. Bankruptcy Court on its prepackaged reorganization plan today.