IRS Objects To Graceway's Ch. 11 Plan Over Setoff Rights

Law360, New York (April 3, 2012, 6:15 PM EDT) -- The Internal Revenue Service on Tuesday objected to Graceway Pharmaceuticals LLC's Chapter 11 reorganization plan, saying it does not preserve the federal government's setoff and recoupment rights.

The IRS says in its objection that the government, like other creditors, retains the right to setoff mutual debts, and that Graceway's proposal contains no provision for those rights.

“Such treatment is impermissible because Section 553 of the Bankruptcy Code preserves the right of setoff in bankruptcy as it exists outside bankruptcy … neither expanding nor constricting it,” the...
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