The US Attorney for Southern New York has now jumped into the Inner City Media Corporation (ICMC) bankruptcy case, opposing the planned auction of the company’s radio stations as a tax dodge. By putting the assets to auction, rather than reorganizing under Chapter 11 of the Bankruptcy Code, the US Treasury may be denied $31 million in taxes.
“This chapter 11 petition does not appear to have been maintained in good faith. Debtors have no intention of even attempting to reorganize under chapter 11. Nor do they intend to even seek to file a liquidating plan under chapter 11. Rather, the only purpose of this chapter 11 proceeding appears to be to allow the Senior Lenders to foreclose upon their collateral – an action which they could have pursued outside of bankruptcy – while obtaining the benefits of the ‘free and clear’ provisions that are unique to chapter 363 sales,” charged US Attorney Preet Bharara.
The US Attorney’s filing revealed that the “stalking horse” credit bid by the senior lenders – Ron Burkle’s Yucaipa Companies, Fortress Credit Lending and Drawbridge Special Opportunities Fund (which is also a Fortress fund) – is $180 million. That was not in public court documents, although it was known to any potential bidder who had signed a confidentiality agreement. The senior debt owed had been $250 million and the senior lenders have the option to increase their credit bid.
If there were any additional bids, the auction was to have taken place Thursday (2/16). A hearing to approve the sale and to rule on the US Attorney’s objection is set for Tuesday (2.21).
RBR-TVBR observation: Given the adversarial nature of this bankruptcy case, which began with the senior creditors filing an involuntary bankruptcy petition, it is pretty absurd for the IRS, via the US Attorney, to claim that this is some conspiracy to avoid paying taxes. And even the US Attorney’s filing admits that the case law precedents are unclear.