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collateral for the partnerships' liabilities, the limited
partners, accordingly, secured, pursuant to section 752(a), an
increase in the basis of their interests in the partnerships
equal to the amounts of those notes.
In the Settlement Agreement, the investors were, in essence,
relieved of personal liability with respect to their interests in
the partnerships and in the investor notes. When Admiral
satisfied the partnerships' obligations to the lenders, the
partnerships were under obligation to Admiral. Correspondingly,
Admiral acquired all interest in the investor notes, and, for all
practical purposes, became the holder in due course of the
investor notes. Admiral, therefore, became a creditor of the
partnerships, and an asset of the partnership (the investor
notes) was acquired by Admiral as collateral for the
partnerships' indebtedness to Admiral.
Petitioners contend that, subsequent to the Settlement
Agreement, the partnerships still possessed "legal muniment of
title" in the investor notes. In that vein, petitioners assert
that Admiral was simply the "equitable owner" of the investor
notes. Petitioners argue, in essence, that while the Settlement
Agreement may have extinguished Admiral's security interest in
the investor notes, the partnerships still retained and held
interest in the investor notes as assets.
The partnerships, however, did not possess any rights with
respect to the outstanding investor notes. Petitioners disregard
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