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Order in the Court: Limits on the Court's Preservation of Debtor Assets

By Jerome M. Schwartzman and Steven J. Joffe
August 31, 2004

Telecom companies invest substantial amounts to acquire their assets, such as underground cables or fiber optic networks. As a consequence of building or acquiring this capital-intensive infrastructure, telecom companies often pay millions of dollars in annual property tax assessments. When telecom asset values drop (as has most recently been the case), telecom companies generally focus on keeping their businesses afloat, rather than on their property taxes.

A Case in Point

Take the case of Metromedia Fiber Network (MFN), which recently emerged from Chapter 11 under the name AboveNet, Inc. As part of the reorganization of its business, Metromedia realized that it had been assessed millions of dollars in property taxes over the prior several years (and would continue to be assessed property taxes), based on assessed asset values that clearly did not reflect the assets' current fair market value. In a clever move, MFN initiated an adversary proceeding in the bankruptcy court seeking a determination of the value of its assets for property tax purposes that would be binding on the state and local taxing jurisdictions. The proceeding included many of MFN's state and local property tax jurisdictions (more than 1000 taxing jurisdictions in which MFN had assets). Metromedia Fiber Network, Inc. v. Various State and Local Taxing Authorities, 299 B.R. 251 (S.D.N. Y. July 15, 2003) (the MFN Case).

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