Mehdi, you asked for my thoughts on a large amount of information, so here it is.
thanks for providing the link to this presentation as well as the link to the congressional report in your post # 26772. Attribution below is for the presentation. I am making comments on each section of the presentation to see how it might relate to Lampert’s purchase of Sears Holdings Corporation assets under a Section 363 Asset Sale and how it relates to a Type (G) reorganization under 368(a)(1)(G) as well as the Committee report on the bankruptcy tax act of 1980.
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Bankruptcy: Special Topics Tracy A. Marion Lanier Ford Shaver & Payne P.C. 2101 West Clinton Ave., Suite 102 Huntsville, AL 35805 256-535-1100 (office) 256-945-0944 (cell) TAM@LanierFord.com www.LanierFord.com © 2014 Tracy A. Marion
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For ease of understanding, I have made parenthetical references to Lampert whether it applies to ESL, Transform Holdco, or any other Lampert controlled entity. I have also made parenthetical reference to “Old Sears” whether it applies to Sears Holdings Corporation (SHC) or any of SHC’s entities and if it seems confusing to SHLDQ (the symbol for SHC stock now that SHLD was delisted from the NASDAQ)
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Tax Aspects of § 363 Asset Sales
? Section 363 of the Bankruptcy Code allows a debtor corporation in a Chapter 11 reorganization to sell some or substantially all of its assets through a court-supervised auction.
DOCKET 1730, FILED ON 1/18/2019, CONFIRMS OLD SEARS SOLD SUBSTANTIALLY ALL OF ITS “GO-FORWARD” ASSETS UNDER A 363 ASSET SALE TO LAMPERT.
Pull up the docket, do a search for “363” and you will get around 45 returns for that item.
? This allows the sale to take place before and outside of the process for confirming the debtor’s plan of reorganization that would otherwise require the vote of creditors.
WE ALL KNOW THIS HAPPENED BECAUSE NOT ONLY HAS A PLAN OF REORGANIZATION NOT BEEN FILED, OLD SEARS APPLIED FOR AND RECEIVED AN EXTENSION OF TIME FOR WHICH THEY HAD THE EXCLUSIVE RIGHT TO FILE SUCH A PLAN.
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Tax Aspects of § 363 Asset Sales
Assets sold pursuant to § 363 are generally transferred free and clear of liens and other prior interests.
JUDGE DRAIN’S ORDER (DOCKET 2507 FILED ON 2/8/2018 SPECIFIED JUST THAT IN THE “TITLE HEADING” OF HIS ORDER:
“ORDER (I) APPROVING THE ASSET PURCHASE AGREEMENT AMONG SELLERS AND BUYER, (II) AUTHORIZING THE SALE OF CERTAIN OF THE DEBTORS’ ASSETS FREE AND CLEAR OF LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES”
? To be free and clear of any “interest in property,” such sales must meet at least one of the following conditions:
• Applicable non-bankruptcy law allows such a sale free and clear of such interest.
• The entity consents. • The interest is a lien and the selling price is more than the aggregate value of all liens on the property.
• Interest is in a bona fide dispute.
• The entity could be compelled to accept a monetary satisfaction of the interest (i.e., in a foreclosure or under receivership).
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? § 363(f) of the Bankruptcy Code.
JUDGE DRAIN’S ORDER SPECIFICALLY STATED THE FOLLOWING ON PAGE 16/83:
R. Satisfaction of Section 363(f) Standards.
SEARCHING “363(f) RETURNS 15 HITS
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Tax Aspects of § 363 Asset Sales
From the federal income tax perspective, § 363 sales occur in one of two forms: a taxable asset sale under IRC § 1001 or a nontaxable reorganization (like G reorganizations).
• 11 USC 368(a)(1)(G)
FROM EXHIBIT B, PAGE 107/1120 OF JUDGE DRAIN’S ORDER:
Sellers (OLD SEARS) agree to cooperate with Buyer (LAMPERT) in order that, for federal income Tax purposes, the transactions effected pursuant to this Agreement, together with the distributions made by, and liquidation of, Sellers (OLD SEARS) pursuant to the Bankruptcy Plan, are treated as one or more plans of reorganization under section 368 of the Code and as qualifying as one or more reorganizations under section 368(a)(1)(G) of the Code
? In a taxable asset sale under IRC § 1012, the purchaser takes a cost basis equal to fair market value of assets at purchase plus the liabilities of seller assumed by purchaser.
THIS DID NOT HAPPEN SINCE LAMPERT AVOIDED THE LIABILITIES OF OLD SEARS AS A RESULT OF THE 363(f) STANDARDS.
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Tax Aspects of § 363 Asset Sales
The debtor/seller’s (OLD SEARS) tax attributes do not carry over to the purchaser (LAMPERT). None of the reductions to debtor/seller’s (OLD SEARS) tax attributes (NOLs, etc.) impact the purchaser’s (LAMPERT’S) attributes.
? Because debtor/seller’s (OLD SEARS) tax attributes do not flow to purchaser (LAMPERT), the seller (OLD SEARS) is able to use its NOLs to shelter any gain on the sale.
? Also, any loss generated by the sale can usually be used to shelter other income of the debtor (OLD SEARS) (or other members if filing as a consolidated group).
THIS PARTICULAR SECTION MIGHT LEAD ONE TO BELIEVE THAT LAMPERT DID NOT GET THE NOL’S. HOWEVER, LOOKING AT THE LAZARD FRERE LETTER WRITTEN AFTER LAMPERT MADE HIS SUCCESSFUL BID, THAT DOESN’T SEEM TO BE THE CASE. ADDITIONALLY THE 368(a)(1)(G) PROVISION WAS FOR THE PURPOSES OF A TAX REORGANIZATION. I THINK IT IS IMPORTANT TO COMMENT THAT THIS “SLIDE” WAS ADDRESSING A SECTION 363 SALE ONLY AND WAS NOT COMBINING IT WITH 368(a)(1)(G).
THE LAZARD LETTER CAN BE FOUND IN EXHIBIT 99.81 OF THE SEC FILING 13D/A FILED ON 12/6/18. IT STATES: OUR (MEANING LAMPERT’S) PROPOSAL PROVIDES THAT NEWCO (THE TERM USED AT THAT TIME FOR LAMPERT’S ORGANIZATION LATER KNOWN AS TRANSFORM HOLDCO) WOULD ACQUIRE SEARS’ (OLD SEARS) TAX ASSETS, THE VALUE OF WHICH WE HAVE INCORPORATED INTO THIS (LAMPERT’S) INDICATIVE BID.
POTENTIALLY ADDING TO THE CONFUSION REGARDING WHETHER OR NOT OLD SEARS OR LAMPERT “HAVE” THE NOLS AT THIS TIME, THE LANGUAGE CLEARLY SHOWS THE NOLS WERE PART OF LAMPERT’S PURCHASE PRICE. HOWEVER, LAMPERT SEEMS TO RECOGNIZE THERE MIGHT BE A POSSIBILITY THE IRS MIGHT NOT APPROVE THE STRUCTURE OF HIS PURCHASE AS QUALIFYING REGARDING LAMPERT’S ABILITY TO UTILIZE THE NOLS WITHIN HIS (LAMPERT’S) TRANSFORM HOLDCO ENTITY AND/OR LAMPERT MAY NOT GET A FAVORABLE TAX OPINION.
THIS CONCERN IS SUPPORTED BY THE FOLLOWING SECTION OF THE ASSET PURCHASE AGREEMENT ATTACHED AS EXHIBIT B OF JUDGE DRAIN’S ORDER AS SHOWN ON PAGE 71/1120 OF DOCKET 2507-1. NOTE, THE JUDGES ORDER COMPRISED PAGES 1-83. THE EXHIBITS TO HIS ORDER WERE NUMBERED 1-1120. ADDING TO POSSIBLE CONFUSION IS THAT PAGE ONE OF THE EXHIBITS (1/1120) IS ALSO SHOWN AS 84/1203 (BECAUSE THE 83 PAGES OF THE JUDGE’S ORDER ARE TACKED ONTO THE 1120 PAGES OF EXHIBITS
TO TRY TO PUT THE FOLLOWING IN PLAIN ENGLISH, EVEN THOUGH LAMPERT’S PURCHASE PRICE INCLUDED OLD SEARS’ TAX ASSETS, HE COULD ELECT TO NOT HAVE THE TRANSACTIONS HE MADE INCLUDE OLD SEARS’ TAX ASSETS. WHY WOULD HE DO THAT? AS YOU CAN SEE IN THE LANGUAGE WHICH WILL BE PASTED BELOW, LAMPERT IS OBVIOUSLY SEEKING A TAX OPINION (AND I BELIEVE PROBABLY ALSO A RULING FROM THE IRS) THAT THE TRANSACTIONS HE MADE UNDER 368(a)(1)(G) QUALIFY. HOWEVER, IF LAMPERT FAILS TO OBTAIN A FAVORABLE TAX OPINION OR AN IRS RULING (A PRIVATE LETTER RULING) THEN LAMPERT CAN OPT TO HAVE THE TAX ASSETS REMAIN WITH OLD SEARS. IT’S THIS UNCERTAINTY, I BELIEVE, WHICH HAS GIVEN RISE TO THE CONFUSION AS TO WHETHER OR NOT THE TAX ASSETS (INCLUDING THE NOLS) RESIDE WITH LAMPERT OR WITH OLD SEARS.
I BELIEVE IT IS INDISPUTABLE THEY RESIDE WITH LAMPERT (SUBJECT TO A FAVORABLE TAX OPINION OR FAVORABLE IRS RULING). IN THE EVENT LAMPERT DOES NOT GET THAT FAVORABLE TAX TREATMENT RULING, THEN IT APPEARS HE IS TRYING TO IDENTIFY SOME REMAINING OLD SEARS ASSETS AROUND WHICH TO HAVE OLD SEARS REORGANIZE. THIS SEEMS TO BE THE CLASSIC “BACK UP PLAN”. SECTION 9.2(a) OF THE APA, CLEARLY STATES THE INTENT OF THE PARTIES IS TO TREAT THE TRANSACTION AS A TAX REORGANIZATION, HOWEVER, IF THEY CAN NOT GET A FAVORABLE RULING THEN “PLAN B” KICKS IN WHICH IS TO HAVE LAMPERT REJECT THE TAX ASSETS THEREBY KEEPING THEM WITH OLD SEARS AND IT APPEARS TO TRY TO “SAVE” SOME BUSINESS(ES) WITHIN OLD SEARS AROUND WHICH A REORGANIZATION COULD BENEFIT FROM RETENTION OF THOSE TAX ASSESTS.
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NOW FOR THE LEGAL TEXT FROM PAGE 71/1120 OF DOCKET 2570:
(b) Buyer may, at any time on or before the earlier of (i) 15 days prior to the effective date of the Bankruptcy Plan and (ii) December 1, 2019, elect, by providing to Sellers written notice of its election, to treat one or more of the transactions (each, a “Designated Sale Transaction”) set forth in this Agreement as not qualifying as a Tax Reorganization, which election shall be effective unless Designated Tax Advisor cannot provide a Tax Opinion that such Designated Sale Transaction can be completed in a manner that would not be treated as a “reorganization” within the meaning of section 368 of the Code; provided, however, that in connection with any such Buyer election to treat all the transactions described in this Article II as Designated Sale Transactions (resulting in no transfer of Sellers’ Tax attributes to Buyer), the Parties shall, if requested by Sellers in writing, identify a business of the Sellers that would become part of the Excluded Assets and consider in good faith any other changes to the structure of the transaction that are reasonable and necessary as a commercial, bankruptcy law and other legal matter to achieve that result. If Buyer does not elect pursuant to this Section 2.12(b) to treat all the transactions described in this Article II as Designated Sale Transactions (resulting in no transfer of Sellers’ Tax attributes to Buyer), or any such election is not effective, then Buyer and Sellers shall continue to comply with Section 9.2(a).
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SO, WHAT THIS MEANS TO ME IS WE WILL JUST HAVE TO WAIT AND SEE WHETHER OR NOT LAMPERT IS SUCCESSFUL IN OBTAINING A FAVORABLE TAX OPINION OR IRS RULING BEFORE WE KNOW FOR CERTAIN WHERE THE TAX ASSETS WILL RESIDE.
IF THOSE TAX ASSETS DON’T END UP WITH LAMPERT THEN I DON’T SEE ANY REASON LAMPERT WOULD BE EXCHANGING ANY TRANSFORM HOLDCO (LAMPERT) STOCK FOR SHLDQ STOCK. IF THAT WERE THE CASE, THE NOLS WOULD BE WITH OLD SEARS AND IT SEEMS TO ME ANY BENEFIT TO BE REALIZED BY SHLDQ STOCKHOLDERS WOULD HAVE TO BE AS A RESULT OF SOME SUCCESSFUL REORGANIZATION OF OLD SEARS, HENCE, MAYBE THE REASON FOR BUYING TIME BY REQUESTING AN EXTENSION OF THE EXCLUSIVE PERIOD FOR OLD SEARS TO FILE A POR.
IT ALSO SEEMS THAT IF THE NOLS REVERTED TO OLD SEARS THAT ANY TYPE OF “MERGER” OF LAMPERT WITH A REORGANIZED OLD SEARS “SHELL” WOULD SUBJECT LAMPERT TO ALL OF THE CREDITOR LIABILITIES HE SUCCESSFULLY AVOIDED BY GETTING HIS PURCHASE APPROVED UNDER 363(f). IF HE WERE TO DO THAT, IT SEEMS ANY LONG TERM TAX BENEFIT WOULD BE COMPLETELY OFFSET IN THE IMMEDIATE TERM FROM HAVING TO REACQUIRE CREDITOR LIABILITIES.
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Tax Aspects of § 363 Asset Sales
To be considered a tax-free transaction (more correctly, a “tax-deferred” transaction), the most popular method is through IRC § 368(a)(1)(G) (a.k.a. “Type G reorganization”).
?In a Type G reorganization, the debtor generally will not recognize any gain or loss on the transfer.
?The debtor’s tax basis typically carries over to the acquiring company.
THIS SEEMS TO BE THE STRATEGY INCORPORATED INTO SECTION 2.12 (a) OF THE APA FROM PAGE 70/1120 OF JUDGE DRAIN’S ORDER.
Section 2.12 Tax Reorganization. (a) The Parties intend that the transactions set forth in this Agreement, as structured and implemented as described in Section 9.2(a), together with the Bankruptcy Plan (as defined below), will, unless and except to the extent that Buyer (LAMPERT) elects otherwise with respect to a particular Seller (OLD SEARS) or Sellers (OLD SEARS) pursuant to Section 2.12(b), (i) constitute one or more plans of reorganization under section 368(a) of the Code (as defined below) and (ii) as qualifying as one or more reorganizations thereunder (a “Tax Reorganization”)
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Type G Requirements
To qualify as a Type G reorganization, the transaction must fulfill several requirements:
• Transfer must be pursuant to a court-approved plan adopted by both sides. • Transfer must be of “substantially all” of transferor's assets to a single acquiring corporation.
AS PREVIOUSLY CITED IN THE LAZARD LETTER, LAMPERT’S BID WAS TO ACQUIRE SUBSTANTIALLY ALL OF THE ASSETS OF OLD SEARS. THAT BID BY LAMPERT TO ACQUIRE SUBSTANTIALLY ALL OF THE ASSETS OF OLD SEARS WAS APPROVED BY THE COURT AS DOCUMENTED IN JUDGE DRAIN’S ORDER.
? 50/70 rule—IRS guidelines in private letter rulings are that transferee (LAMPERT) must acquire more than 50% of fair market value of gross assets and more than 70% of the fair market value of operating assets of transferring (OLD SEARS) company.
OBVIOUS IF LAMPERT ACQUIRED SUBSTANTIALLY ALL OF THE ASSETS OF OLD SEARS AND QUOTED COMMENTS FROM THE BOARD POSTS OF THE LAWYER SAYING LAMERT RESIGNED FROM SEARS BECAUSE HE DIDN’T WANT TO STAY ON WITH OLD SEARS BEING EFFECTIVELY A SHELL, IT MIGHT BE SAFE TO CONSIDER THESE PERCENTAGES HAVE BEEN MET.
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Type G Requirements
Stock of acquirer (LAMPERT) must be distributed by transferring company (OLD SEARS) to its shareholders.
THIS SEEMS TO BE STRAIGHTFORWARD BUT I’M NOT SURE THAT IT IS.
THERE IS A DOCUMENT OUT THERE WHICH I CAN NOT FIND AT THIS POINT. POSSIBLY SCHEDULE 9.2 (I BELIEVE) WHICH IS A DESCRIPTION OF THE “SECURITIES CONSIDERATION” REFERENCED IN THE APA WHICH LAMPERT IS REQUIRED TO DELIVER AT CLOSING. IF MEMORY SERVES ME CORRECTLY, THIS CONSISTS OF 3,000 SHARES OF A CLASS B SECURITY IN TRANSFORM HOLDCO WHICH WAS VALUED AT $300,000. THESE SECURITIES WERE TO BE DISTRIBUTED TO DEBTORS, OTHER THAN SHC, IN ACCORDANCE WITH THE DISTRIBUTION AGREEMENT (WHICH I CAN NOT LOCATE AT THIS TIME). I BELIEVE THE SHAREHOLDERS REFERENCED WERE THE SHAREHOLDERS AND CREDITORS OF SHC SUBSIDIARIES, NOT HOLDERS OF SHLDQ.
• At least one shareholder of transferring company (OLD SEARS) must receive stock of acquiring company (LAMPERT).
OF CONCERN HERE IS THE LANGUAGE DOESN’T PROVIDE THAT ALL SHAREHOLDERS OF OLD SEARS MUGT RECEIVE STOCK OF LAMPERT’S COMPANY. IS THIS THE “SCREW THE REST OF THE SHLDQ SHAREHOLDERS LOOPHOLE” OR NOT?
OBVIOUSLY LAMPERT WAS AND CONTINUES TO BE A SHAREHOLDER OF OLD SEARS AND AS SHOWN ON THE FOLLOWING REFERENCES HE IS ALSO A SHAREHOLDER IN HIS OWN COMPANY, TRANSFORM HOLDCO, WHICH IS THE ACQUIRING COMPANY.
DOCKET 2344 AT THE BOTTOM OF PAGE 237 SAYS THAT LAMPERT, IN EXCHANGE FOR HIS CREDIT BID, WILL RECEIVE SHARES IN TRANSFORM HOLDCO. ADDITIONALLY, DOCKET 2352 ON PAGE 24 SAYS THE SAME THING.
• Must be a bona fide business or corporate purpose for transaction.
SINCE LAMPERT’S COMPANY, TRANSFORM HOLDCO, PURCHASED SUBSTANTIALLY ALL OF THE GO-FORWARD ASSETS ON A GOING CONCERN BASIS, THIS PROVISION SEEMS TO BE SATISFIED.
•Only the transferring corporation (OLD SEARS) or the acquirer (LAMPERT) (or neither) can be an investment company.
OLD SEARS ISN’T AN INVESTMENT COMPANY AND LAMPERT IS
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Type G Requirements
There must be a continuity of the business enterprise of transferor’s (OLD SEARS) business.
SINCE LAMPERT’S COMPANY, TRANSFORM HOLDCO, PURCHASED SUBSTANTIALLY ALL OF THE ASSETS OF OLD SEARS WITH THE STATED INTENT OF CONTINUING THE BUSINESS, THIS HAS ALSO BEEN SATISFIED.
? This requirement is met if acquirer either continues transferor’s business or uses a significant portion of the transferor’s assets in acquirer's business.
SEE COMMENT ABOVE
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Tax Aspects of § 363 Asset Sales
Continuity of proprietary interest requirement:
? Measured by amount of stock received by transferor’s (OLD SEARS) creditors and shareholders as a percentage of total consideration.
? Typically if 40% or more of consideration is transferor’s (OLD SEARS) stock, requirement is met.
WHEN THIS PRESENTATION WAS MADE, I’M NOT SURE IF TRANSFEROR IN THIS SECOND POINT SHOULD HAVE BEEN TRANSFEREE. I CAN’T MAKE SENSE OF IT AS IT READS. THEREFORE, I HAVE DONE A CUT/PASTE DESCRIBING THE CONCEPT OF CONTINUITY OF PROPRIETARY INTEREST. EVEN THOUGH IT IS NOT A PART OF THE ARTICLE, I HAVE INSERTED “OLD SEARS” AND “LAMPERT” FOR CLARITY.
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What is the Continuity Of Interest Doctrine - CID
The Continuity of Interest Doctrine (CID) requires shareholders of an acquired company (OLD SEARS) to hold an equity stake in the acquiring company (LAMPERT) to allow tax deferral. The doctrine, (or CID, also known as Continuity of Proprietary Interest) stipulates that a corporate acquisition of a target firm can be done on a tax-free basis if the shareholders of the acquired company (OLD SEARS) receive and hold an equity stake in the acquiring company (LAMPERT).
The Continuity of Interest Doctrine was intended to ensure that a stockholder in an acquired company (OLD SEARS), who continued to hold an interest in the successor corporation (LAMPERT) or continuing entity created after the reorganization, would not be taxed. In practical terms, however, the doctrine can do little to enforce a continuing interest because shareholders of the acquired company (OLD SEARS) are free to dispose of their holdings as soon as the acquisition transaction is completed.
BREAKING DOWN Continuity Of Interest Doctrine - CID
The Internal Revenue Service (IRS) abandoned the post-reorganization continuity requirement and adopted new regulations in January 1998 and eventually finalized the regulations in December, 2011. The focus of the new regulations was primarily on the consideration received by the shareholders of the acquired company (OLD SEARS), with the objective of preventing a transaction that is actually a sale of the company from receiving tax-free status. The Continuity of Interest doctrine requires that a specified percentage of such consideration be in the form of the acquiring company's (LAMPERT’S) stock. While the IRS required this percentage to be 50% for advance ruling purposes, case law suggests that Continuity of Interest can be maintained even at 40%.
The continuity of interest requirement is determined based upon when a binding contract for acquisition by the parent company (LAMPERT) is signed, and the price at which the stock of the target firm (OLD SEARS) is purchased. In an acquisition, shareholders of the target firm (OLD SEARS) may typically receive stock in the acquiring firm (LAMPERT) as well as cash for their shares originally held in the target firm (OLD SEARS) . In the case of a cash-only sale of stock in a target company, shareholders of the acquired firm would typically pay tax on the sale of shares when the acquisition is completed. Under CID, taxes would be deferred until the point at which they sold the shares acquired in the merger.
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SO, THE QUESTION IS, SINCE LAMPERT ACTUALLY HOLDS 49.5% OF THE STOCK ((WITHOUT TAKING INTO CONSIDERATION OF ANY OF HIS WARRANTS (PROBABLY WORTHLESS SINCE THEY ARE “OUT OF THE MONEY”) AND THE DERIVATIVE SECURITIES WHICH HE CAN CONVERT)) CAN THIS PROVISION REGARDING CONTINUITY OF PROPRIETARY INTEREST BE SATISFIED ALONE ON THE BASIS OF LAMPERT’S SHARES OR DO ALL OF THE SHLDQ SHAREHOLDERS HAVE TO BE INCLUDED? IS THIS A LOOPHOLE LAMPERT COULD EXPLOIT AT THE EXPENSE OF THE REMAINING SHAREHOLDERS? THE 40% RULE (RECENTLY REFERENCED IN A BOARD POST) SEEMS LIKE IT COULD BE SATISFIED BY LAMPERT WITHOUT “TAKING IN” THE REMAINING SHLDQ SHAREHOLDERS.
WHILE I UNDERSTAND HOW THIS COULD BE A P/R NIGHTMARE FOR LAMPERT, REMEMBER HIS COMMENT IN THE WSJ ARTICLE LAST THURSDAY WHEN LAMPERT SAID THAT AS A PRIVATE COMPANY HE COULD DO THINGS WHICH MIGHT NOT BE ACCEPTABLE TO SHAREHOLDERS. THIS COMMENT WAS MADE BEFORE HE COMMENTED HE WOULD BET HIS PRIVATE COMPANY WOULD EVENTUALLY GO PUBLIC.
SO, DO EVERYTHING “DISTASTEFUL” AS A PRIVATE COMPANY AND NOT HAVE TO ANSWER TO ANYBODY AND THEN GO PUBLIC? AGAIN, I’M TRYING TO LOOK AT WHAT MIGHT POSSIBLY BE UNDER THE RUG. I KNOW HE MADE THE COMMENT ABOUT BEST OUTCOME FOR ALL STAKEHOLDERS BUT IS THAT BINDING?
CONFUSING THE ISSUE OF CONTINUITY OF INTEREST IS LANGUAGE FROM THE CONGRESSIONAL REPORT. THE COMMITTEE BILL PROVIDES THAT CREDITORS OF A DEBTOR (OLD SEARS) CORPORATION ARE TO BE TREATED AS SHAREHOLDERS IN APPLYING THE CONTINUITY RULES.
FOOTNOTE 1 ON PAGE 33 OF THIS REPORT SAYS: UNDER PRESENT LAW, IT IS NOT CLEAR TO WHAT EXTENT CREDITORS OF AN INSOLVENT CORPORATION WHO RECEIVE STOCK IN EXCHANGE FOR THEIR CLAIMS MAY BE CONSIDERED TO HAVE “STEPPED INTO THE SHOES” OF FORMER SHAREHOLDERS FOR PURPOSES OF SATISFYING THE NONSTATUTORY “CONTINUITY OF INTEREST” RULE, UNDER WHICH THE OWNERS OF THE ACQUIRED CORPORATION (OLD SEARS) MUST CONTINUE TO HAVE A PROPRIETARY (I READ THIS AS MEANING STOCKHOLDER) INTEREST IN THE ACQUIRING CORPORATION (LAMPERT). GENERALLY, THE COURTS HAVE FOUND THE “CONTINUITY OF INTEREST” TEST SATISFIED IF THE CREDITORS’ INTERESTS WERE TRANSFORMED INTO PROPRIETARY INTERESTS PRIOR TO THE REORGANIZATION.
FOOTNOTE 7 ON PAGE 37 SAYS: CREDITORS OF A DEBTOR CORPORATION IN A TITLE 11 OF SIMILAR CASE ARE TO BE TREATED AS SHAREHOLDERS IN APPLYING THE CONTINUITY RULES OF CODE SEC 382(b).
SO, IF CREDITORS CLAIMS ARE CONVERTED BY ISSUING THEM STOCK, THEY ARE NOW STOCKHOLDERS AS NOTED ABOVE AND LAMPERT, TOGETHER WITH ANY CONVERTED CREDITORS CERTAINLY MAKE UP MORE THAN 50% OF STOCKHOLDERS. AGAIN, THAT FOR ME RAISES THE QUESTION, DOES LAMPERT HAVE TO BRING THE MINORITY SHLDQ SHAREHOLDERS TO THE PARTY?
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Credit Bidding (363(K))
When an asset is sold under 363 and it is subject to a secured creditor’s lien, the creditor may use all or a portion of its claim against the debtor to satisfy the purchase price.
JUDGE DRAIN’S ORDER, DOCKET 2507 ON PAGE 9 SO ORDERED THAT LAMPERT COULD CREDIT BID IN ACCORDANCE WITH 363(K)
? This is known as credit bidding.
? This protects the secured creditor against bias from other parties that would undervalue the property.
? The creditors can also claim the proceeds from a 363 sale to another bidder if the creditor believes the bid represents the true value of the property.
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Credit Bidding (363(K))
?In theory, the creditor recognizes a taxable gain (or loss) equal to the difference between the fair market value of the property and the creditor’s basis in the portion of the claim.
?In practice, however, there is a regulatory presumption that the fair market value of the property equals the amount of the claim exchanged for it, and thus no gain or loss is recognized.
IT WOULD APPEAR THIS SECTION WOULD APPLY SINCE LAMPERT RECEIVED $1.3 BILLION IN VALUE FOR UTILIZING THIS AS PART OF HIS TOTAL $5.2 BILLION BID.
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THE WAY THE LINK DOWNLOADED, I AM NOT ABLE TO CUT/PASTE SECTIONS OF IT. REMEBERING THAT LAMPERT, AS PART OF THE SECURITIES CONSIDERATION DISCUSSED IN THE APA WAS TO PROVIDE 3000 CLASS BE SHARES WHICH WAS PART OF LAMPERT’S PURCHASE PRICE FOR SUBSTANTIALLY ALL OF THE ASSETS OF OLD SEARS, I WOULD ENCOURAGE YOU TO READ THE EXAMPLE ON PAGE 38 OF THE CONGRESSIONAL REPORT WHICH WAS LINKED IN POST # 26722.
