Illinois Dept. of Revenue v. Hanmi Bank

Bankruptcy Ct. did not err in finding that Ill. Dept. of Revenue (IDOR) failed to establish value of its interests in debtor’s commercial properties that were sold to satisfy creditor claims, for purposes of IDOR seeking portion of sales proceeds, where: (1) prior to said sales, Bankruptcy Ct. allowed under section 363(f) of Bankruptcy Code sales to proceed free and clear of interests held by any entity including IDOR; (2) proceeds of sales were lower than banks’ superior secured interests in said properties; and (3) Bankruptcy Ct.’s section 363(f) orders effectively precluded IDOR from seeking to impose successor liability on purchasers of said properties for state taxes owed by debtors. Although section 363(e) of Bankruptcy Code allowed IDOR instant opportunity to seek portion of sales proceeds to compensate it for decrease in value of its interests in said properties caused by issuance of section 363(f) orders, IDOR’s argument that it was entitled to recoup full amount of instant tax deficiencies was not supported by record, and record otherwise failed to contain any evidence regarding purchasers’ financial ability to pay any amount of subject tax deficiencies. Moreover, likelihood of IDOR collecting on tax deficiencies from sale proceeds was minimal both before and after instant sales, given fact that: (1) banks holding superior interests in said properties could have blocked any sale terms that favored IDOR at expense of said banks; and (2) banks could have simply foreclosed on said properties without having to pay any proceeds to IDOR.