The bankrupt Advanta Corp. is in a dispute with its nonbankrupt subsidiary Advanta Bank Corp. over whether to file a tax return and carry back losses for five years, in the process generating a $54 million tax refund.
The bank, which had been one of the country's largest credit card issuers, drew first blood by filing an emergency motion on March 12 asking the bankruptcy court to compel the holding company to generate the refund by filing a 2009 tax return carrying back losses for five years. If the holding company claimed the refund, the bank would have a $170 million claim against the parent arising under a tax-sharing agreement.
The holding company elected not to claim the refund when filing the 2009 return on March 14, the day before the return was due. On Monday, the holding company filed papers in the U.S. Bankruptcy Court in Wilmington, Del., explaining this decision.
The holding company does not want to dilute the claims of other creditors by giving rise to the bank's $170 million claim. In addition, the holding company intends on carrying the loss forward for 20 years, to offset income after reorganization.
The holding company also said not taking the tax loss carryback would preserve its basis in the bank subsidiary's stock. That way, the holding company in the future could take a worthless-stock deduction that would not give rise to the $170 million claim by the bank.
The holding company seems to believe the bank will be taken over by the Federal Deposit Insurance Corp. That being the bank's future, the holding company sees the bank as having no value for the holding company's creditors.
Even giving the entire $54 million to the bank would not save the institution from insolvency, in the holding company's opinion.
The bank wants the bankruptcy court to hold an expedited hearing on the motion. By Monday evening, a hearing date had not been set.
The holding company said in January that it intends to file a liquidation plan to establish a trust holding assets that are not feasible to sell.
The Spring House, Pa., holding company filed under Chapter 11 in November, saying then it intended to distribute the last $100 million in cash in a manner "that benefits stakeholders fairly." The January statement said shareholders should not expect anything.