ENTERPRISES, INC. (the "Reorganized Debtor"), by and through its
and pursuant to 11 U.S.C. § 510(c) files this Motion to Subordinate
Tax Penally Claim of the Department of the Treasury - Internal Revenue
Service (the "
IRS") as set forth in Claim No. 67, and in support thereof states as follows:
1. On January 13,2005 (the
"Petition Date"), the Debtor filed with this Court its
Petition for relief under Chapter 11 or the Bankruptcy Code.
2. The Debtor's P
lan of Reorganization was confirmed on July 14, 2006
pursuant to t
his Court's Order Confimling Debtor's Plan ofReorganizalion as Supplemented,
and Modi fied Pursuant to I I U.S.c. § 1129 (the "Plan") (D.E. # XXXXX).
Pursuant to Section 3.3 of the Plan, the Reorganized Debtor wishes to to pay
allowed priority tax claims in full from the proceeds of the sale of the 10 Acre Property
closed on December 29, 2006.
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Case No. 9:05-bk-00699-ALP
Claim No. 67 filed by .he IRS
or about June 8, 2006, the lRS filed Claim No. 67, amending its
filed Claim No. 41 dated May 19,2005.
set fonh in Claim No. 67, the lRS asserts that it is ent itled to: (i) an
non-priority claim in the amollnt ofS 14,973.90 (the "Unsecured Ponion"); (ii) a
red tax claim in the amount of$75, 193.69 plus $3,626.08 in pre-petition interest for a
lal of$78,8 19.77 (Ihe "Secured Tax Claim Portion"); (iii) a secured pre-petition penalty
in the amount of$40,0 13.26 (the "Secured Penalty Portion"); and (iv) an unsecured
priority claim in the
amount of $74,501.47 (the "Priori ty Portion"), for a total claim of
The Secured Penalty Ponion and the Unsecured Portion of Claim o. 67
epresent at total of S55,005.16 in penalties relating to the Reorganized Debtor's nonpayment
FICA tax li abilities far the periods set forth in the Fonn 10 attached to Claim No.
(.he ''Tax Penally Claims").
On December 20, 2006, the Reorganized Debtor filed its Corrected Objection
Claim No. 67, recommending that the Secured Tax Claim Portion be treated as a priority
aim and the Secured Penalty Portion be treated as an unsecured non-prio rity claim (Docket
(A) Subordination of
the Tax Penalty Claims Under Section 5 I O(c)
Pursuan! to Section
51 O(c) of the Bankruptcy Code, the Court may, "under principles
of equitable subord
inat ion, subordinate for purposes of distribution all or part of an allowed
claim to al
l or part of another allowed claim." 11 U.S.C. § 51 O(c). Thus, Ihe Statute clearly
Case 9:05-bk-00699-ALP Doc 890 Filed 05/25/07 Page 3 of 8
this Court authority to subordinate the Tax Penalty Claims to the allowed unsecured
of the estate's general creditors. III re Cassis Bistro, IIIC., 188 B.R. 472,473 (Bankr.
equities in this case strongly favor subordination. First, the Tax Penalty Claims
are clearly nonpecuniary claims
representing penalties re lating to the Reorgani zed Debtor's
withhold FICA taxes. Second, the LRS shall receive full payment plus interest on
l tax claims asserted in Claim No. 67 under the Plan since these claims are entitled to
under Section 507(a)(8) of the Bankruptcy Code. Third, after payment of
rative claims and priority claims, the monies availab le for distribution to general
red creditors will currently yield only a partial dividend. Consequently, it would be
le for this dividend to be further diluted by having the Reorgani zed Debtor pay the
Penalty Claims to the detriment of the general unsecured Class 3 creditors. /d. at 475
III re Airlift llllemational, In c., 120 B.R 597, 602 (Bankr. S.D. Fla. \990).
8 ) Subordination of the Tax Penalty Claims Under Section 1129(a)(7)
subordination is not only appropriate in this case but may indeed be
mandated as part
of the Plan to meet the requirements of § 11 29(a)(7). Bankruptcy Code
ion 1129(a)(7), the commonly called "best interest of creditors test", which requires
to receive a distribution nolless than they would receive if the Reorganized Debtor
liquidated under Chapter 7 on the effective date of the Plan.
not the best interest of creditors test could have been satisfied in this case
reference to this Section 1 I 29(a)(7) confimlation requirement
provides additional support for subordinating
nonpecuniary tax penalty claims in a
11 case. In re Cassis Bistro. Inc., 188 8.R. at 475. The Tax Penalty
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No. 9:05-bk-00699-A LP
at issue in th is case would be subordinated to the other allowed unsecured claims
I I U.S .C. § 726(a)(4) if this estate was liquidated under Chapter 7. lei. Accordingly,
the Class 3
unsecured credi tors in this case would fare better in a Chapter 7 unless the Tax
Claims were subordinated for distribution under the Plan because there is currently
enough funds available from the proceeds of the sale of the 10 Acre Parcel 10 satisfy all
Class 3 Claims in this case. ld. Finally, it would make no sense to actually require a
to Chapter 7 (with its attendant administrative expenses) solely to obtain the
utory right to subordinate the Tax Penalty Claims in a liquidation when Bankruptcy Code
1 O(c) provides an appropriate vehicle for achieving the same legitimate goal. Id.
t of Tax Penalty Claims in this case pro rata with other general unsecured
hann innocent creditors in favor of[RS which is going to receive full payment
interest on its underlying tax claims. Equitable subordination of the Tax Penalty
is both pennissible under § 510(c) and appropriate under the facts of this case.
, the Reorgani zed Debtor, Morande Enterprises, Inc. respectfully
entry of an Order Subordinating the Tax Penalty Claims Asserted by the IRS in
Amount of $55,005.16 to the Claims of the Class 3 General Unsecured Creditors and
any further rel ief deemed fa ir and just under the circumstances.
Ih is 25th day of May, 2007.