Updated: Dallas Stars Sale & Bankruptcy: IRS Files Objection To Sale

This past week we learned that Tom Gaglardi would be facing no other bidders during the bankruptcy proceedings and we assumed there was a clear path to the sale of the team finally completed. The final confirmation hearing is scheduled for November 23 and just a few days was the deadline for any objections to the bankruptcy to be made.

Unfortunately, there were a few objections filed.

With a heads up from the Globe & Mail, we have learned that the IRS and General Electric have filed separate objections to the Joint Prepackaged Plan that constitutes the proposed reorganization of the Dallas Stars as a company as well as the procedures to use the Stalking Horse Purchase Agreement to move assets to Tom Gaglardi.

Update: The Globe and Mail updated their earlier post on this IRS objection with the following...[-Brad G]

An objection filed by the Internal Revenue Service with the U.S. Bankruptcy Court is not expected to derail the sale of the Dallas Stars to Vancouver businessman Tom Gaglardi.

Sources familiar with the deal said Thursday the objection was filed because the IRS wants to be consistent with its actions in an earlier bankruptcy case involving Major League Baseball's Texas Rangers. Both the Rangers and the Stars were owned by Tom Hicks through his company Hicks Sports Group and both wound up in bankruptcy court with a total debt of $500-million (all currency U.S.). [Globe and Mail]

More after the jump...

It seems that the IRS's filing is more of a formality than anything else, wishing to be consistent in their actions from one case to the other (Texas Rangers and Dallas Stars). The source told the Globe and Mail it wasn't much of a problem in the first place because only a small number of dollars are at stake here. The lawyers on all sides are expected to work this out.

The claim by GE remains and is a separate issue regarding an insurance claim made on the Dr. Pepper Arena in Frisco, but it is not expected to be a major stumbling block.

Another interesting note from this update is that The Globe and Mail says "It is expected Gaglardi will soon receive the approval of the NHL board of governors to buy the Stars and this will be presented to the bankruptcy court at a hearing Nov. 23."

We have been under the impression that the Stars would need to wait until the December board of governors meeting to obtain that approval. If not, then this is good news. We'll try to follow up on this. Check back with us as always for the latest. -Brad Gardner [/Update]

B.W.'s original story continued...

The first objection, filed by the United Stars on behalf of the Internal Revenue Service, essentially objects to the fact that this plan does not have any provisions in place to preserve the setoff rights of the IRS.

This is a big issue, as the IRS has a right to these claims as part of the bankruptcy codes and going to bankruptcy does not mean businesses are free from these financial claims either. Going to bankruptcy allows a business to move on from a number of debts but not from the federal government. As stated in the motion:

"IRS objects to the Plan to the extent the Plan fails to provide for full payment of any IRS administrative expense claim. IRS further objects to Articles II, section 2.1 and VII, section 8.2 of the Plan to the extent the Plan fails to provide for the payment of interest on IRS administrative expense claims."

Basically, the IRS wants to ensure that the bankruptcy does not go through until a provision is made that all tax claims are paid in full.

The other objection, filed by General Electric Capital Corporation, has to do with Dr Pepper Arena in Frisco. Apparently GE is claiming they are entitled to insurance claims having to do with the arena and tied to a loan with the city of Plano. In December of 2009, the insurance company denied a claim made in regards to water damage and since then no other claims have been made to the insurer about this issue.

As part of the bankruptcy, this loan (claim) would be discharged. GE is trying to ensure that this claim is not discharged and that GE can continue to pursue a claim for the water damage. Right now, as part of this current plan, that would not be possible as the plan calls for a release in certain liabilities from the rink.

Whether these two issues will delay the sale or the confirmation of the bankruptcy plan is unknown. Perhaps the plan can be accommodated to ensure these objections are corrected, especially when you have the IRS coming at the sale and attempting to collect certain tax claims.

You didn't think this would be easy, did you?

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