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Partner Willys Schneider Discusses Tax Scenarios in Bankruptcy Situations

September 12, 2013

Thomson Reuters discusses Texas utility Energy Future Holding’s ongoing efforts to negotiate a prepackaged bankruptcy that would avoid Chapter 11. Citing interest payments of approximately $250M coming due, and several key creditors that haven’t yet signed nondisclosure agreements, Reuters describes people close to the negotiations as stating that time is running out to reach a prepackaged restructuring deal.

The article also discusses how potential ownership changes, resulting in debt reduction through creditors accepting equity in exchange, could impact tax obligations.

According to Kaye Scholer Tax Partner Willys Schneider, “Cancellation of indebtedness income can be sizable in situations like these and can result in a large corresponding tax liability upfront.”

A bankruptcy filing can enable some income deferral through the application of tax rules permitting a reduction of existing tax attributes such as net operating losses, Schneider adds.

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