The Pension Benefit Guaranty Corporation (PBGC) filed with the U.S. Bankruptcy Court an objection to Katy Industries’ motion for an order authorizing the Debtor to consent to, and take any further actions that it determines are reasonably necessary or appropriate to consummate, the sale of a real estate parcel owned by its non-debtor subsidiary.
PBGC asserts, “The sale of the non-debtor’s assets and the proceeds thereof do not relate, in any way, to the Debtors’ estates. This Court therefore does not have jurisdiction to approve the non-debtor sale and direct payment of the resulting proceeds. And to do so would violate the rights of W.J. Smith’s creditors. Indeed, PBGC holds federal governmental claims against W.J. Smith in the amount of $1,352,007.59, which, under the Federal Priority Statute, have priority above all other nongovernmental parties’ claims. Accordingly, Katy’s Motion should be denied in its entirety. Alternatively, should the Court grant the non-debtor sale, PBGC requests that the Court order that the sale proceeds go directly to PBGC.”
In addition, “Because the proceeds from the Denison Parcel sale are not property of the Debtors’ estates, this Court does not have jurisdiction to authorize Katy to cause the sale proceeds to be remitted to Jansan. Paying the proceeds to Jansan would illegally harm W.J. Smith’s creditors, including PBGC, by depriving them from any recoveries….Under the Federal Priority Statute, an insolvent debtor that is not in bankruptcy generally must pay its debts to the government first before paying any other person or entity, and any representative of the insolvent debtor that pays any part of a debt before paying the governmental debt is personally liable.”
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