Here is another excerpt from the transcript that I find interesting. It concerns the $26 million tax loss (NOL(which I think stands for "Non Operating Loss" but I welcome correction from any legal types that wish to comment)) and what possibly could be a "catch 22" type of situation.
"THE COURT: And the only real asset here is the $26 million NOL and that's a valuable asset. I guess there is a subsidiary asset in that for reasons I don't fully understand, but which I at least at some point in my lawyering career had some exposure to and I've largely forgotten. There may be value in the existence of a public company. I'm not quite sure what that is but putting that aside, the real asset is, as I would gather the $26 million NOL which is something of real value if under the tax law it can be utilized to deal with another ongoing business that has taxable income it could benefit from it. I think I understand that.
And there is no question that it's something of value if it is of value under the tax law and can be utilized. And if that's what is the potential holy grail here, what I - I don't know because what I know about the tax law you could put in your eye and not suffer the slightest discomfort from.
I don't know whether or not it is necessary as a tax matter for the existing shareholders to survive and become shareholders in the reorganized entity. I have a sense that it is. So, fine. If that's what's required under the tax law, then it's required.
And the existing creditors can't derive anything for themselves from the $26 million asset which is the only thing that will get them anything more than a few pennies on the dollars. Great. That should be enough to overcome the problems created by whatever the section -
MR> GOLDBERG: 1129
THE COURT: 1129B-2-b(2), the absolute priority rule which otherwise would require absent consent, the total elimination of the equity. If I'm correct that the tax law doesn't permit the use of the NOL if the equity is completely eliminated then that's sufficient reason for the creditors to vote in favor of a plan that preserves the equity to the extent necessary under the tax law. Fine.
What - I do have one real concern raised by Mr. Fewkes and I don't know the answer to it and that is the objection that the code prohibits, if you will, trafficking in a corporate shell. This isn't quite a corporate shell. It has an asset. I just don't know what the outcome of that is. If confirmation really is barred under 1141D-3 and the "Fairchild Aircraft Corp." Case and like authorities, if there are any, and that's really the outcome then, you know, what are we doing here? I guess I'd address that to Mr. Fewkes.
But if it can be done, it's obviously to everybody's benefit to realize the benefit, the economic benefit of the NOL and I'm not sure why the Bankruptcy Code would necessarily quash that value."
The catch 22 is this; earlier it has been stated that Autoinfo has about $850,000 in cash, an asset. My understanding is, that the bankruptcy should distribute ALL assets so in the end Autoinfo has NO assets BUT, if they do that, then the $26 million tax loss cannot be used by an acquiring company. As is stands now AUTO has something over $8 million in debt, more than enough to wipe out the $850,000 in cash, but if that debt is CONVERTED to equity (give the debtors stock in lew of cash) then all debts are paid, there are still assets and the acquiring company CAN use the tax loss.
Again, anyone with legal expertise PLEASE feel free to jump in here.
All in all, to me it seems as if the judge would go along with AUTO's plan to convert the debt to stock (equity) because , in the end, everyone would benefit. We shall see.
I have already placed my bet, on AUTO's success. Let's hope it works out for all of us!!!!!
If you want your own copy of the transcript please see post #187 for the address and phone number of TypeWrite.
Paul |
