- 17 -
December 10, 1992. This claim was settled, in 1994, when
petitioners' wholly owned company paid $2.2 million to the
bankruptcy trustee. These funds were, in turn, utilized to
satisfy the outstanding claims of creditors. Finally, in late
1995, the bankruptcy trustee delivered a Final Report which
concluded that all claims had been settled. In the following
year, the bankruptcy court issued a final order which ruled New
Manchester's bankruptcy proceeding to be closed. Thus, a
practical assessment of the relevant facts and circumstances does
not indicate or, even, suggest that the underlying indebtedness
was extinguished or discharged by the bankruptcy court in 1992.
Cozzi v. Commissioner, supra at 445-447.8
Petitioners argue that New Manchester was insolvent, and as
a practical matter, there was a de facto discharge of
indebtedness, in 1992. Sec. 108(a)(1)(B). The parties have, in
effect, stipulated that New Manchester was insolvent. In that
regard, petitioners assert that it was exceedingly improbable
that the outstanding liabilities would ever be paid. However,
8We note that, in addition, under the provisions of a ch. 7
bankruptcy proceeding, a "discharge" may not be granted to a
debtor who is not an individual. Stated in a different manner,
New Manchester, as a corporate debtor, was ineligible for a
"discharge" under the aforementioned ch. 7 proceedings. 11
U.S.C. sec. 727(a)(1) (1994)(effective for the years at issue).
In that regard, there are procedures which provide the debtor to
an absolute right to convert the case to a case under ch. 11. 11
U.S.C. sec. 706(a) (1994).
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011