NOW READ OUR ARTICLES IN 40 DIFFERENT LANGUAGES.
HOME PAGE SUBSCRIPTIONS, Print Editions, Newsletter PRODUCTS READ THE PETROLEUM NEWS ARCHIVE! ADVERTISING INFORMATION EVENTS

Vol. 24, No.45 Week of November 10, 2019
Providing coverage of Alaska and northern Canada's oil and gas industry

Furie stay modified

Click here to go to the full PDF version of this issue, with any maps, photos or other artwork that appears in some of the articles.

Court: State can recoup 2014 tax credit overpayments from unpaid credits

Steve Sutherlin

Petroleum News

The automatic stay in the Chapter 11 bankruptcy case of Furie Operating Alaska and related companies has been modified to allow the state of Alaska to pursue the collection of overpayment of calendar year 2014 tax credit reimbursements in the amount of $2,370,772, which the Department of Revenue identified in an Aug. 9 audit notice and demand for payment.

U.S. Bankruptcy Judge Laurie Selber Silverstein signed the modification order Nov. 4 “for the limited purpose of permitting: (a) the adjudication of any administrative or judicial appeal of the debtors’ oil and gas production tax liability for the taxable period beginning on January 1, 2014 and ending on December 31, 2014 under Alaska Statute 43.55; and (b) the State of Alaska to offset tax credit overpayments to debtor Cornucopia Oil & Gas Company, LLC for the year 2014 against pre-petition tax credits owed by the State of Alaska to debtor Cornucopia Oil & Gas Company, LLC to the extent permitted by Alaska Statute 43.55.023 or other applicable nonbankruptcy law and in accordance with Bankruptcy Code section 553.”

Cornucopia, along with Corsair Oil & Gas LLC, is an affiliated debtor in the Furie bankruptcy.

Deutsche Oel & Gas S.A. of Luxembourg - according to its website - “operates the oil and gas business in the (United States) through Cornucopia Oil & Gas Company, LLC and Furie Operating Alaska, LLC - the operating company for Cornucopia, both headquartered in Anchorage, Alaska.”

Deutsche Oel is not a debtor in the Furie case; it describes itself as “the holding company of a group of companies currently focused on the exploration and production of natural gas and crude oil in the Cook Inlet Basin in Alaska.”

Full force and affect

Except as modified by the order, the automatic stay in the cases will otherwise remain in full force and effect.

“Notwithstanding the relief granted in this order and any actions taken pursuant to such relief,” nothing in the order “shall be deemed an admission as to the validity of any claimed right of setoff against the debtors; a waiver of the debtors’ right to dispute any claim on any grounds; a promise or requirement to pay any claim; a waiver of the debtors’ rights under the Bankruptcy Code or any other applicable law; to alter any rights or obligations under the Prepetition Loan documents or the DIP documents as defined in the DIP Order; or to create any rights in favor of, or enhance or change the status of, any claim held by any person or entity.”

Also, under the order, the 14-day stay of bankruptcy rule was waived, making the order immediately effective and enforceable upon entry.

Administrative, judicial appeals authorized

The Alaska Department of Revenue Tax Division, in its motion filed Sept. 11, sought authorization for administrative and judicial appeals of its determination that the state overpaid Cornucopia’s production tax credits. DOR noted in the filing that Cornucopia filed an administrative appeal of that determination on Aug. 29.

DOR said Cornucopia has approximately $105 million in pre-petition production tax credits issued by the state, which can be assigned under state statutes for purposes of security. Of the $105 million, approximately $4 million are unassigned.

“The unassigned tax credits are more than sufficient to eliminate Cornucopia’s 2014 overpaid tax credit liability,” DOR said.

The Bankruptcy Code preserves the right of setoff, DOR said, adding, “The requirements for exercising the right of setoff are that the offsetting debts must be mutual, prepetition debts.”

“Here, the debts are mutually owed between the State of Alaska and Cornucopia Oil and Gas, LLC, and both debts are prepetition in nature,” DOR said. “Therefore, the requirements for offset are met.”

The Section 362 automatic stay prohibits the “commencement or continuation … of a judicial, administrative or other action or proceeding against the debtor” concerning a pre-petition claim, DOR said.

“Although the administrative appeal itself, initiated by Cornucopia, may not violate the automatic stay, continuation of that appeal may require the stay to be lifted so that the administrative appeal, and any subsequent judicial appeals, may proceed,” DOR said, adding that cause exists to lift the stay for this purpose because the administrative appeal was initiated by Cornucopia itself, and because it is in the interests of both Cornucopia and the state that the parties’ respective rights be determined.

Once the amount of the state’s over payment has been determined, cause exists to lift the stay to permit offset of any such overpayments by the state against unassigned tax credits otherwise due Cornucopia, because there are mutually offsetting debts, and because the state lacks adequate protection for payment in this liquidating Chapter 11, DOR said.

“If the state does not offset the unassigned credits against the overpayment of credits, the state will likely receive little, if any, payment on the taxes due,” it said.

DOR said that to the extent the tax credit is considered property under Section 362, the tax credits are not necessary to achieve an effective reorganization because this is a liquidating bankruptcy.

DOR argued further that cause for relief from stay also exists in order to facilitate the resolution of the case.

“One of debtors’ first-day motions was a motion to allow debtors to pay the state property tax,” DOR said. “As stated in that motion, prompt payment of taxes owed to the State ‘will ultimately preserve the resources of the debtors’ estates, thereby promoting their prospects for a successful Chapter 11 process.’”

Resolution of tax credit overpayments, like property tax liability, would require debtors to expend time and incur costs to resolve a multitude of issues related to such obligations, DOR said, adding, “As debtors further explained, the tax obligations ‘may be considered to be obligations as to which debtors’ officers and directors may be held directly or personally liable in the event of nonpayment. In such events, collection efforts by the taxing authorities would provide obvious distractions to the debtors and their officers and directors in their efforts to bring the Chapter 11 cases to an expeditious conclusion.’”

“This court agreed with debtors’ rationale and authorized the payment of property taxes, which debtors have since paid,” DOR said. “The same rationale applies here, and the tax credits should be offset against Cornucopia’s audit liability.”

The DOR motion was signed Sept. 4 on behalf of Kevin G. Clarkson, attorney general, by Robert H. Schmidt, assistant attorney general.



Print this story | Email it to an associate.






Petroleum News - Phone: 1-907 522-9469 - Fax: 1-907 522-9583
[email protected] --- https://www.petroleumnews.com ---
S U B S C R I B E

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)©1999-2019 All rights reserved. The content of this article and web site may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law subject to criminal and civil penalties.

This story has 98 lines. and it is 3073 pixels high.
ERROR ERROR