Pre-Bankruptcy Tax Considerations for Distressed Companies: Developing a Strategic Plan

This CLE webinar will discuss the complex tax considerations and strategic planning that need to be analyzed to minimize potential tax liabilities and to preserve valuable tax attributes before a financially distressed company files bankruptcy. The panel will also address how restructuring and bankruptcy can create tax consequences for creditors and holders of interests in pass-through entities.

Bankruptcy is often a last resort, so the road there is frequently paved with restructuring transactions, modifications, amendments, extensions of debt, deferrals, etc. that all have tax implications. Whether the debtor is a pass-through entity (typical for private equity portfolio companies) or C corporation, the nature of the debt, and the timing and nature of prior attempts to restructure all affect the tax consequences of bankruptcy and restructuring. Negative tax consequences can impact the ability or willingness of different parties to propose, support, confirm, and implement a plan.

The interplay between bankruptcy and taxes must be properly planned for and managed. One critical issue in the pre-bankruptcy context is determining when debt modification becomes "significant" and the effect of that determination on gain or loss recognition, original issues discount treatment, or cancellation of debt income (CODI) to the company, its creditors, and owners. Debt owed by pass-through entities to third parties can sometimes be recharacterized as equity, turning creditors into partners subject to complex partnership tax rules.

Listen as our panel of esteemed tax professionals offers guidance for navigating these complex pre-bankruptcy tax considerations and developing a strategic plan to mitigate tax liabilities and to preserve tax attributes.