Appeals Court Upholds Tyco’s Tax Claim Against CIT
Law360 reported that the U.S. Court of Appeals for the Second Circuit refused to erase Tyco International’s $190 million claim that its former subsidiary CIT Group had wrongly scrapped a tax benefits agreement after filing for bankruptcy.
According to the news post, a three-judge panel affirmed a December 2011 bankruptcy court decision that classified the claim as a creditor claim, rather than an inferior shareholder claim. CIT shareholders were wiped out by the bank holding company’s 2009 bankruptcy filing.
In its most recent 10-Q filing, CIT said in connection with the company’s separation from Tyco International in 2002, CIT and Tyco entered into a tax agreement pursuant to which, among other things, CIT agreed to pay Tyco for tax savings actually realized by CIT, if any, as a result of the use of certain net operating losses arising during the period that Tyco owned CIT, which savings would not have been realized absent the existence of the Tyco tax attribute.
During CIT’s bankruptcy, CIT rejected the tax agreement, and Tyco and CIT entered into a standstill agreement pursuant to which (a) CIT agreed that it would defer bringing its subordination claim against Tyco and (b) Tyco agreed that it would defer bringing its damage claim against CIT while the parties exchanged information about CIT’s tax position, including past usage and retention of the various attributes on its consolidated tax return. Notwithstanding the standstill agreement, Tyco filed a notice of arbitration during the 2011 second quarter, demanding arbitration of its alleged contractual damages resulting from rejection of the tax agreement. CIT filed an adversary proceeding in the United States Bankruptcy Court for the Southern District of New York, seeking to subordinate Tyco’s interests under section 510(b) of the Bankruptcy Code, which would result in Tyco being treated like equity holders under CIT’s confirmed plan of reorganization and receiving no recovery in connection with the termination of the tax agreement.
In December 2011, the Bankruptcy Court issued its decision denying the request to subordinate Tyco’s interests. CIT appealed the decision directly to the Second Circuit.
The amount of the federal Tyco tax attribute is approximately $794 million and the state Tyco tax attribute is approximately $180 million as of the separation date, CIT said.
To read the Law360 news post, click here.
Previously on abfjournal.com: