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as equity, thereby enabling G�nther to issue its FYE April 30,
1992, commercial report and avoid statutory bankruptcy.15
2. The Actium Transaction
The next part of petitioner’s plan to minimize its exposure
involved the purchase of G�nther's interest in Actium. Unlike
virtually every other asset on G�nther’s German balance sheet,
the fair market value of G�nther’s partnership interest in Actium
exceeded its book value. Petitioner concluded that if G�nther
were to sell its interest in Actium to an affiliated company, the
resulting net cashflow could be used to pay down G�nther’s
liabilities, while minimizing petitioner’s potential exposure in
the event of G�nther’s bankruptcy.
Petitioner organized a subsidiary, Investors Capital Company
(ICC), which purchased G�nther’s ownership interest in Actium in
December 1992 for its fair market value of approximately
$3,477,000. The fair market value of G�nther’s interest in
Actium was determined by an independent third-party appraisal
because petitioner was concerned that the transaction could be
reversed in bankruptcy. The purchase yielded a positive cashflow
to G�nther of DM 8,000,000.16
15G�nther’s auditors would not issue financial statements
for FYE Apr. 30, 1992, that showed liabilities in excess of
assets, one of the conditions resulting in statutory bankruptcy.
16The return of a related sinking fund and an amount
attributable to tenant improvements increased the funds available
to pay down G�nther’s liabilities from approximately DM 5,400,000
(continued...)
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