Illinois Department of Revenue v. First Community Financial Bank

The bankrupt businesses had debts that far exceeded the value of their assets. Bankruptcy courts authorized the sale of their principal assets (gasoline stations and a movie theater and café). Under Illinois law, the Illinois Department of Revenue (IDOR) may pursue the purchaser in a bulk sale for state taxes owed by the seller. To facilitate sales of the debtors’ properties, the bankruptcy court (11 U.S.C. 363(f)) allowed the sales to proceed free of any interests other than the bankruptcy estate's. Under section 363(e), a party whose interest has been removed is entitled to “adequate protection,” typically payment from the sale proceeds to compensate for the decrease in value of the party's interest. Each bankruptcy court assumed that IDOR was entitled to adequate protection but concluded that, because the sale proceeds were insufficient to satisfy the claims of the senior-most creditors (mortgages holders), IDOR was entitled to no portion of the sale proceeds. There were no other assets available. The Seventh Circuit affirmed. While the removal of IDOR’s interest likely increased the price bidders were willing to pay for the properties, IDOR has not given a realistic assessment of the value of its interest. The court rejected an argument that IDOR would have recovered 100 percent of the tax delinquency from an informed purchaser; IDOR’s claims were properly denied for want of evidence enabling the bankruptcy court to assign a reasonable value under section 363(e). View "Illinois Department of Revenue v. First Community Financial Bank" on Justia Law