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Performance Sports Group Objection Filed

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Performance Sports Group filed with the U.S. Bankruptcy Court an objection to Stornoway Portfolio Management’s notices of intent to purchase, acquire, or otherwise accumulate an equity interest.

The objection asserts, “If the Debtors undergo an “ownership change,” section 382 of title 26 of the United States Code, the Internal Revenue Code of 1986, as amended (the ‘IRC’), could severely limit or eliminate their ability to use their Tax Attributes to offset future taxable income….The general purpose of Section 382 is to prevent a company with taxable income from reducing its tax obligations by acquiring control of another corporation with NOLs, net unrealized built-in losses or certain other tax attributes. To achieve this objective, Section 382 limits the amount of taxable income that can be offset by a pre-change loss to an amount equal to the product of the long-term tax-exempt rate (as published monthly by the U.S. Department of the Treasury) as of the ownership change date and the value of the equity of the loss corporation immediately before the ownership change. Built-in losses recognized during the five-year period after the ownership change may be subject to similar limitations. Thus, if an ownership change were to occur during the course of these Chapter 11 Cases outside of a chapter 11 plan, Section 382 would act to limit the amount of taxable income that the Debtors could offset by their pre-change losses in taxable years (or portions thereof) to an annual amount equal to the value of the corporation prior to the ownership change multiplied by the long-term tax-exempt rate. This formulaic limitation under Section 382 could severely restrict, or destroy entirely, the Debtors’ ability to use their Tax Attributes to offset income generated during these Chapter 11 Cases, thereby potentially diminishing the value of the Debtors’ estates to the ultimate detriment of the Debtors’ residual stakeholders.”

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