Robert P. McIntosh 

Assistant United States Attorney 

919 East Main Street, Suite 1900 

Richmond, Virginia 23219 

Telephone: (804) 819-5400 

Facsimile: (804) 819-7417 

E-Mail: Robert.McIntosh@usdoj.gov 

Counsel for the United States of America

 IN THE UNITED STATES BANKRUPTCY COURT 

 FOR THE EASTERN DISTRICT OF VIRGINIA 

 RICHMOND DIVISION 

 

IN RE: ) 

 ) CASE NO. 20-32181-KLP 

CHINOS HOLDINGS, INC., et al. ) CHAPTER 11 

 ) 

 ) (Jointly Administered) 

Debtors. ) 

OBJECTION TO CONFIRMATION OF CHAPTER 11 PLAN, 

NOTICE OF OBJECTION TO CONFIRMATION OF PLAN 

AND NOTICE OF SCHEDULED HEARING ON THIS OBJECTION

1. Notice of Objection and Notice of Hearing 

PLACE OF HEARING:

Courtroom 5100 

701 East Broad Street 

Richmond, Virginia 23219 

DATE AND TIME OF 

HEARING:

August 25, 2020 

10:00am 

 Your rights may be affected. You should read these papers carefully and discuss 

them with your attorney, if you have one in this bankruptcy case. (If you do not have an 

attorney, you may wish to consult one.)

2. Objection to Confirmation of Chapter 11 Plan 

The United States of America, by and through undersigned counsel, on behalf of its 

Internal Revenue Service, hereby objects to confirmation of the proposed Chapter 11 Plan on the 

following grounds: 

Case 20-32181-KLP Doc 733 Filed 08/12/20 Entered 08/12/20 15:51:54 Desc Main

Document Page 1 of 11
—2— 

1. The Debtor filed a Chapter 11 Petition in the jointly administered case on May 4, 

2020. The Internal Revenue Service timely filed a proof of claim, setting forth the following 

information: 

Date of Claim: July 17, 2020 

Secured Amount $0.00 

Priority Amount: $22,077,797.92 

General Unsecured Amount: $0.00 

Total Claim Amount: $22,077,797.92 

See Proof of Claim 322 filed on July 21, 2020. 

 2. Priority Claims. The “Joint Prearranged Chapter 11 Plan of Reorganization of 

Chinos Holdings, Inc. and its Affiliated Debtors” (Dkt No. 540) (the “Plan”) does not adequately 

provide for the priority claim of the Internal Revenue Service. Article 2.4 (Priority Tax Claims) 

provides as follows: 

Except if a holder of an Allowed Priority Tax Claim agrees to less 

favorable treatment, each holder of an Allowed Priority Tax Claim shall 

receive, in full and final satisfaction, settlement, release, and discharge of, 

and in exchange for, such Allowed Priority Tax Claim, at the sole option 

of the Reorganized Debtors, cash in an amount equal to such Allowed 

Priority Tax Claim on, or as soon thereafter as is reasonably practicable,

the later of (a) the Effective Date, to the extent such Claim is an Allowed 

Priority Tax Claim on the Effective Date, (b) the first business day after 

the date that is 30 calendar days after the date such Priority Tax Claim 

becomes an Allowed Priority Tax Claim, and (c) the date such Allowed 

Priority Tax Claim is due and payable in the ordinary course; provided 

Case 20-32181-KLP Doc 733 Filed 08/12/20 Entered 08/12/20 15:51:54 Desc Main

Document Page 2 of 11
—3— 

that the Debtors and the Reorganized Debtors, as applicable, reserve the 

right to prepay all or a portion of any Allowed Priority Tax Claim at any 

time without penalty or premium. 

Plan, p. 20, Art. 2.4 (emphasis added); see also Plan, p. 34, Art. 6.7 (“interest shall not 

accrue or be paid on any Claims on or after the Petition Date” except as otherwise 

provided in the Plan). Section 1129(a)(9)(C) of the Bankruptcy Code (11 U.S.C.) 

provides that “[t]he court shall confirm a [Chapter 11] plan only if . . . [inter alia] the 

plan provides that . . . with respect to [priority tax claims] . . . the holder of such claim 

will receive on account of such claim regular installment payments in cash—(i) of a total 

value, as of the effective date of the plan, equal to the allowed amount of such claim; (ii) 

over a period ending not later than 5 years after the date of the order for relief . . . ; and 

(iii) in a manner not less favorable than the most favored nonpriority unsecured claim 

provided for by the plan (other than cash payments made to a class of creditors under 

section 1122(b)).” 11 U.S.C. § 1129(a)(9)(C) (emphasis added). This provision requires 

the payment of interest on the priority claims of the Internal Revenue Service if not paid 

in full on the effective date of the plan. See, e.g., In re Jankins, 184 B.R. 488, 492 (Bankr. 

E.D. Va. 1995) (payment of post-confirmation interest “comports with rather than 

contravenes [the] express provision [Section 1129(a)(9)(C)] of the Bankruptcy Code”). 

Proposed language to remedy this objection: “To the extent that the IRS priority tax 

claims are not paid in full in cash on the Effective Date, interest shall accrue (and be paid) on the 

unpaid balance at the underpayment rate established by the Internal Revenue Code, 26 U.S.C. 

§ 6621(a)(2), as of the Effective Date of the Plan, accruing annually and compounding daily, 

until paid.” 

Case 20-32181-KLP Doc 733 Filed 08/12/20 Entered 08/12/20 15:51:54 Desc Main

Document Page 3 of 11
—4— 

3. Written authorization for amendment of claims. The Internal Revenue Service 

objects to Article 7.7, which provides as follows: 

A Claim may not be filed, amended, or supplemented after the applicable 

bar date established by the Bankruptcy Court without the prior written 

authorization of the Bankruptcy Court or the Reorganized Debtors, and 

any such new, amended, or supplemented Claim filed without such written 

authorization shall be deemed Disallowed in full and expunged without 

any further notice to or action, order, or approval of the Bankruptcy Court 

to the maximum extent provided by applicable law. 

Plan, p. 39, Art. 7.7 (emphasis added). The IRS likely will need to amend its proof of claim 

because the priority claims for each taxable period set forth on the proof of claim currently is an 

“estimated” claim in light of the fact that either: (1) the return for the taxable period currently is 

being examined by the Service; or (2) the claim is based on available information because a 

return has not been filed. See Claim 322, p. 7. 

Proposed language to remedy this objection: Article 7.7 should provide the following 

introductory language: “Except with respect to any claim filed by the Internal Revenue Service, 

for whom no prior written authorization shall be required, . . . . ” 

4. Administrative Claims Bar Date. Article 1.9 of the Plan establishes an 

administrative claims bar date “60 days after the Effective Date,” which it designates as “the 

deadline by which parties seeking payment of Administrative Expense Claims must file a motion 

seeking Allowance of such claim [see our objection 3 (above)], submit a proof of claim, or 

otherwise request in writing payment of such claims.” 

Article 2.1 of the Plan provides that “requests for payment of Administrative Expense 

Claims must be filed and served on the Debtors or Reorganized Debtors no later than the 

Administrative Expense Bar Date,” and that the holder of any such administrative claim “that 

Case 20-32181-KLP Doc 733 Filed 08/12/20 Entered 08/12/20 15:51:54 Desc Main

Document Page 4 of 11
—5— 

do[es] not timely file and serve such a request shall be forever barred from asserting such 

Administrative Expense Claims against the Debtors, the Reorganized Debtors, or their respective 

property, and such Administrative Expense Claims shall be forever barred, estopped, and 

enjoined from asserting such Administrative Expense Claims.” 

Notably, the Plan exempts claims for professional compensation from this onerous 

requirement. Id. To the extent that the Debtors owe, or will owe the Service any administrative 

tax liabilities, and have not reported those liabilities, it will be impossible for the Service to 

comply with this provision of the Plan.1 Moreover, the failure to abide by an administrative bar 

date may result in the discharge of the liability.2 This provision, as applied to the United 

States, violates 11 U.S.C. § 503(b)(1)(D).3

Section 503(b)(1)(D) states as follows: 

[N]otwithstanding the requirements of subsection (a) [which 

requires a timely filed request for payment], a governmental unit 

shall not be required to file a request for the payment of an expense 

described in subparagraph (B) or (C), as a condition of its being an 

allowed administrative expense.4

 1

 Because of the self-reporting nature of Federal taxes, the United States will not even 

be aware of the existence of administrative tax liabilities unless and until the Debtors and/or 

the estate file required Federal tax returns. 

2

 In re AMF Bowling Worldwide, Inc., 520 B.R. 185, 190 (Bankr. E.D. Va. 2014) 

(“Because Board's causes of action arose after the Petition Date, but before the Effective Date, 

her claims are administrative claims under section 503 of the Bankruptcy Code and subject to the 

Administrative Claims Bar Date. 11 U.S.C. § 503.”). 

3

 Unless otherwise stated all references to statutory authority shall refer to those statutes 

contained in Title 11 of the United States Code. 

4 Section 503(b)(1)(B) and (C) include, inter alia, any tax incurred by the estate and any 

fine or penalty related to such tax. 

Case 20-32181-KLP Doc 733 Filed 08/12/20 Entered 08/12/20 15:51:54 Desc Main

Document Page 5 of 11
—6— 

The proposed Plan ignores the plain language of the Bankruptcy Code which exempts 

governmental units from the onerous requirements of administrative tax claim bar deadlines. 

Further, the administrative bar date provisions of the Plan conflict with the provisions of 

11 U.S.C. § 505. Under § 505 a trustee (debtor in possession) may file a tax return for taxes 

incurred in the administration of the estate accompanied by a request for a determination by the 

taxing authority and obtain a discharge from liability for the tax by paying the reported tax 

unless the taxing authority selects the return for audit within a certain time period. In re Shin, 

306 B.R. 397, 408 (Bankr. D.C. 2004). 

The Plan “thrusts” on the taxing authority the obligation to file a request for payment 

within a set time period whether or not a return has been filed, or the tax has been paid. Clearly, 

the administrative bar date provisions of the Plan conflict with the scheme that Congress set forth 

for determining and discharging administrative tax liabilities. Because the administrative bar 

date provisions conflict with specific provisions of the Bankruptcy Code the Plan violates 

§1123(b)(6) which prohibits the inclusion of provisions “inconsistent with applicable provisions”

of Title 11. 

Proposed language to remedy this objection: “Notwithstanding any provision of the 

Plan, there shall be no requirement that the Internal Revenue Service file any request for 

payment of Administrative Expenses, nor any deadline for the filing of such requests. Nor shall 

the failure to pay such liabilities result in a discharge, injunction, exculpation, release or in any 

other manner defeat the United States’ right or ability to collect such liability pursuant to the 

requirements of Title 26.” 

5. Release, Discharge and Exculpation of Related Parties. The Internal Revenue 

Case 20-32181-KLP Doc 733 Filed 08/12/20 Entered 08/12/20 15:51:54 Desc Main

Document Page 6 of 11
—7— 

Service objects to the Plan to the extent that Articles 10.4 through 10.8 release, discharge, 

“exculpate,” or otherwise affect the right of the Internal Revenue Service to collect against any 

responsible persons for Trust Fund Recovery Penalties under 26 U.S.C. § 6672. The Plan 

discharges the Debtors and Reorganized Debtors (Art. 10.4) and enjoins “against or affecting” 

all of the Debtors “present and former officers . . . , directors . . . , managers, managing directors, 

managing members, members, principals, [and] employees,”5

 or their property, the assertion of 

any claims or interests “that are extinguished, discharged, or released pursuant to the Plan.” Art. 

10.6(b). Discharged and released claims, in turn, are defined as all: 

Claims, Interests, rights, and liabilities that arose before the Effective 

Date. . . . all Interests and Claims of any nature whatsoever, including 

(unless otherwise specifically provided herein) any interest accrued on 

Claims from and after the Petition Date, whether known or unknown, . . . 

and all debts of the kind specified in section[ ] . . . 502(i) of the 

Bankruptcy Code, . . . [and] Interests and Claims of any nature whatsoever 

. . . whether or not [the] holder [of such claim] has filed a proof of claim 

and whether or not the facts or legal bases therefor were known or existed 

before the Effective Date. 

Art. 10.4. 

The releases, discharges and exculpations set forth above include the release and 

discharge of claims and interests against individuals among whom would be found responsible 

persons for purposes of Trust Fund Recovery Penalty (TFRP) liability under Section 6672 of the 

Internal Revenue Code (26 U.S.C.). The IRS objects to the third party non-debtor limitation of 

liability, exculpation, injunction and release provisions set forth in Articles 10.4 through 10.8 of 

 5 See Art. 10.6 imposing injunction against “released parties;” Art. 1.117 defining 

“released parties” to include “related parties;” and Art. 1.116 (“related parties means . . . all 

present and former officers . . . , directors . . . , managers, managing directors, managing 

members, members, principals, [and] employees.” 

Case 20-32181-KLP Doc 733 Filed 08/12/20 Entered 08/12/20 15:51:54 Desc Main

Document Page 7 of 11
—8— 

the Plan. The injunction provisions violate the Anti-Injunction Act, I.R.C. Section 7421(a). See 

American Bicycle Association v. United States, 895 F.2d 1277 (9th Cir. 1990); United States v. 

Prescription Home Health Care, Inc., 316 F.3d 542 (5th Cir. 2002); In re Plainwell, Inc., 2004-2 

USTC Paragraph 50, 393 (D. Del. 2004). Section 524(e) of the Bankruptcy Code addresses the 

scope of a bankruptcy discharge and states, in relevant part, that “discharge of a debt of the 

debtor does not affect the liability of any other entity on, or the property of any other entity for 

such debt.” The Bankruptcy Code contemplates that a discharge only affects the debts of those 

submitting to its burdens. The weight of case authority is consistent with the view that provisions 

that effect a discharge of non-debtor liability run afoul of the limitations on discharge set forth in 

Section 524(e) of the Bankruptcy Code. See e.g., In re Continental Airlines, 203 F.3d 203, 217 

(3rd Cir. 2000); In re Lowenschuss, 67 F.3d 1394, 1401 (9th Cir. 1995), cert. denied, 517 U.S. 

1243 (1996) (“Section 524 does not . . . provide for the release of third parties from liability”); In 

re Zale Corp., 62 F.3d 746, 760-61 (5th Cir. 1995) (“Section 524 prohibits the discharge of debts 

of non-debtors”); First Fidelity Bank v. McAteer, 985 F.2d 114, 117-18 (3rd Cir. 1993) (“Section 

524(e) specifically limits the effect of a discharge . . . . This section assures creditors that the 

discharge of a debtor will not preclude them from collecting the full amount of a debt from codebtors or other liable parties.”); Green v. Welsh, 956 F.2d 30, 33 (2nd Cir. 1992) (“the language 

of [Section 524(e)] reveals that Congress sought to free the debtor of his personal obligations 

while ensuring that no one else reaps a similar benefit”); In re Western Real Estate Fund, Inc., 

922 F.2d 592, 602 (10th Cir. 1990), modified sub nom., Abel v. West, 932 F.2d 898 (10th Cir. 

1991) (permanent injunction purporting to release non-debtors from liability improperly insulates 

non-debtors in violation of Section 524(e)); In re American Hardwoods, Inc., 885 F.2d 621, 626 

Case 20-32181-KLP Doc 733 Filed 08/12/20 Entered 08/12/20 15:51:54 Desc Main

Document Page 8 of 11
—9— 

(9th Cir. 1989) (In affirming the denial of a permanent injunction against a claim against third 

party non-debtor, court noted: “Section 524(e), therefore, limits the court’s equitable power 

under section 105 to order the discharge of liabilities of non-debtors.”) 

Proposed language to remedy this objection: “Nothing in this Plan shall enjoin the 

Internal Revenue Service (“IRS”) from assessing a liability against a responsible person under 

I.R.C. § 6672. The IRS has the authority to determine any person working for Debtor as a 

responsible person under I.R.C. § 6672. Nothing in the Plan shall enjoin the IRS from 

collecting a liability against a responsible person under I.R.C. § 6672.” 

WHEREFORE, the United States respectfully requests that confirmation of the proposed 

Plan be DENIED; or alternatively, that it be amended to address the Service’s objections, or that 

provisions be included in the Order of Confirmation, to be endorsed by counsel for the Internal 

Revenue Service. 

Respectfully submitted, 

G. ZACHARY TERWILLIGER 

United States Attorney 

By: /s/ Robert P. McIntosh 

Robert P. McIntosh 

Assistant United States Attorney 

 

Case 20-32181-KLP Doc 733 Filed 08/12/20 Entered 08/12/20 15:51:54 Desc Main

Document Page 9 of 11
—10— 

CERTIFICATE OF SERVICE 

I hereby certify that I have on this date served the foregoing upon all interested parties to 

this proceeding, by causing true and correct copies thereof to be placed in the United States mail, 

postage prepaid, addressed as follows: 

Michael J. Nicholson 

225 Liberty Street 

New York, NY 10281 

Debtor Designee 

I hereby certify a copy of foregoing will be filed with the United States Bankruptcy Court 

electronically in the CM/ECF system. Notice of this filing will be sent to all .Notice Parties by 

operation of the Court's electronic filing system. Parties may access this filing through the 

Court's system. Parties currently listed by the CM/ECF system to receive electronic notice in 

this case include counsel representing the debtor/debtor-in-possession, the proponent of the plan, 

and the United States Trustee as follows: 

Counsel to the Debtors 

Attn: Ray C. Schrock, P.C. 

Ryan Preston Dahl 

Candace M. Arthur 

Daniel Gwen 

Weil, Gotshal & Manges LLP 

Email: Ray.Schrock@weil.com 

Email: Ryan.Dahl@weil.com 

Email: Candace.Arthur@weil.com 

Email: Daniel.Gwen@weil.com 

Co-Counsel to the Debtors 

Attn: Tyler P. Brown 

Henry P. (Toby) Long, III 

Nathan Kramer 

Hunton Andrews Kurth LLP 

Email: tpbrown@hunton.com 

Email: hlong@hunton.com 

Email: nkramer@hunton.com 

Proposed Counsel to the Creditors’ Committee 

Attn: Robert J. Feinstein 

Bradford J. Sandler, Esq. 

Shirley S. Cho, Esq. 

Pachulski Stang Ziehl & Jones LLP 

Email: rfeinstein@pszjlaw.com 

Case 20-32181-KLP Doc 733 Filed 08/12/20 Entered 08/12/20 15:51:54 Desc Main

Document Page 10 of 11
—11— 

Email: bsandler@pszjlaw.com 

Email: dgrassgreen@pszjlaw.com 

Email: scho@pszjlaw.com 

Proposed Co-Counsel to the Creditors’ Committee 

Attn: Robert S. Westermann 

Hirschler Fleischer, P.C 

Email: rwestermann@hf-law.com 

Office of the U.S. Trustee 

Office of the U.S. Trustee for the Eastern 

District of Virginia, Richmond Division 

Attn: Kenneth N. Whitehurst, III 

Email: USTPRegion04.RH.ECF@usdoj.gov 

Date: August 12, 2020 

 /s/ Robert P. McIntosh 

Case 20-32181-KLP Doc 733 Filed 08/12/20 Entered 08/12/20 15:51:54 Desc Main

Document Page 11 of 11