Earlier this year, Debtor Doral Financial Corp. had filed a voluntary Chapter 11 bankruptcy petition with the U.S. Bankruptcy Court for the Southern District of New York, Case No. 15-10573, weeks after its wholly owned subsidiary, Doral Bank Puerto Rico, which had a mortgage lending and retail banking business, was closed by regulators and the Federal Deposit Insurance Corporation was appointed as receiver for Doral Bank. Doral Bank's failure was a result of years of financial losses and economic turmoil and was the largest bank failure since 2010.
Most recently, on December 17, 2015, Debtor Doral and the Official Committee of Unsecured Creditors of Doral Financial Corp. filed an adversary proceeding against Juan C. Zaragoza Gomez, in his capacity as the Secretary of the Treasury of the Commonwealth of Puerto Rico as part of the underlying, ongoing bankruptcy case (Adv. Proc. No. 15-01427). Through the adversary proceeding complaint, Debtor Doral and the Unsecured Creditors Committee are seeking a declaratory judgment that prior closing agreements between the Debtor Doral and the Secretary of the Treasury of the Commonwealth of Puerto Rico reached to redress tax overpayments, are valid and enforceable and that Debtor Doral "may continue to amortize the Tax Asset to produce tax deductions that may offset [Doral's] current and future taxable income." Debtor Doral and the Committee of Unsecured Creditors argue that it is entitled to the "Tax Asset"—a $889 million tax credit, which is amortizable for income tax purposes over 15 years to create an annual tax deduction in the amount of approx. $59.3 million. Debtor Doral and its creditors committee "believe that the 2006, 2007, and 2009 Closing Agreements are now operative" as the 2012 closing agreement was held to be invalid and unenforceable.
Debtor Doral and its creditors committee contend that the "Tax Asset is significant asset of the Debtor [Doral's] estate" and that without clarity from the Bankruptcy Court regarding the validity of the closing agreements, "it will substantially impair efforts to pursue possible transactions that will maximize the value of the Tax Asset."
It will be interesting to see the developments of Debtor Doral and its creditors committee's efforts, in the upcoming months, seeking validity of the $889 tax deal and its potential impact on the underlying bankruptcy case and the resulting impact of the largest bank failure since 2010.
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