Federated Department Stores, Inc.
United States Bankruptcy Court for the Southern District of Ohio
1991 Bankr. LEXIS 743 (1991)
- Written by Eric Miller, JD
Facts
Allied Stores Corporation (Allied) (debtor) was one of several subsidiaries belonging to a consolidated group of department stores, Federated Department Stores, Inc. (Federated) (debtor), all of which filed a single tax return. Allied, Federated, and various associated entities filed for Chapter 11 bankruptcy. Allied had issued preferred stock whose certificate provided that shareholders could elect two additional directors of the Allied board if Allied failed to pay dividends over six consecutive quarters. Allied fell into arrears on the payment of dividends to the preferred shareholders, all of whom were outside the consolidated group. However, Allied feared that allowing the preferred shareholders’ voting rights to take effect would change the tax treatment of the preferred shares, potentially (1) removing Allied from eligibility for inclusion in the consolidated group and (2) resulting in as much as $234 million in tax liability. Allied moved for an order from the bankruptcy court authorizing an amendment to the preferred-stock certificate that would eliminate the preferred shareholders’ voting rights.
Rule of Law
Issue
Holding and Reasoning (Aug, Jr., J.)
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