Global Brokerage seeks to protect $288 million of NOLs

Maria Nikolova

Taxes form a crucial aspect of corporate life, as Global Brokerage shows by filing a Motion to protect the potential value of the Debtor’s net operating loss carryforwards.

To state the importance of taxes is a trivial action, given that, in certain business cases, taxes (and tax savings) account for hefty sums. The latest piece of proof comes from Global Brokerage Inc (NASDAQ:GLBR), which officially filed for Chapter 11 bankruptcy on December 11, 2017.

The company, which is also referred to in the court papers as a “Debtor”, has submitted a Motion (NOL Motion) seeking to establish procedures to protect the potential value of its net operating loss carryforwards (NOLs) and certain other tax attributes (Tax Attributes).

A net operating loss (NOL) is a loss taken in a period where a company’s allowable tax deductions exceed its taxable income. When more expenses than revenues are reported for a given period, the net operating loss for the company can generally be used to recover past tax payments.

Global Brokerage estimates that, as of September 30, 2017, it had approximately $288 million of consolidated NOLs for U.S. federal income tax purposes in addition to certain other Tax Attributes. To put things in context, the NOLs are worth pretty much as the loan from Leucadia extended back in January 2015.

Global Brokerage now proposes procedures that would impose certain restrictions and notification requirements with respect to the following stock issued by the Debtor:

  1. Class A Common Stock;

  1. options and similar rights (within the meaning of applicable U.S. Treasury regulations) to acquire such stock.

In particular, the proposed procedures require any holder of Global Brokerage’s stock that is or becomes a Substantial Stockholder (defined as an entity or person possessing 4.5% of all issued and outstanding shares of Class A Common Stock) to provide notice to the Debtor. The proposed procedures also require notice before (and in one instance precludes) certain transactions that could jeopardize the Debtor’s ability to utilize the Tax Attributes.

The “Tax Attributes” include valuable assets of Global Brokerage’s estate because the Tax Code generally permits corporations to carry over their Tax Attributes to reduce future taxable income. Accordingly, absent any intervening limitations, the Tax Attributes could substantially reduce the Debtor’s U.S. federal income tax liability during the pendency of this Chapter 11 Case (such as in connection with the disposition of assets) or, potentially, in the event of a future transaction, to offset future income tax liabilities.

The Tax Attributes could thus translate into future tax savings over time and any such savings could enhance the Debtor’s cash position for the benefit of all parties in interest.

Accordingly, the trading procedures seek authority to monitor and approve certain changes in the ownership of Class A Common Stock in the Debtor (including by claiming a worthlessness deduction) to protect against the occurrence of an ownership change during the pendency of the bankruptcy case.

The relief requested in the NOL Motion is set to prevent diminution of this valuable asset of the Debtor’s estate.

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