Many issues were rising to the forefront between Verizon Communications and Idearc Inc. when Idearc voluntarily filed for Chapter 11 bankruptcy and claimed that they had reached an agreement with its lenders to reduce their substantial debt significantly. Idearc, which is a spinoff from Verizon Communication and a former Verizon telephone subsidiary, claimed that the debt had reached $9.5 billion. The significant amount drove the company to file for bankruptcy in Federal Bankruptcy Court in Dallas, where it is based. In 2009, Idearc claimed that it expected to file a plan that would reorganize the company within 30 days. The reorganization process plan was to quickly finalize and execute a restructuring plan that would strengthen the company’s financial situation as a whole.
Nevertheless, Verizon has received a title for leaving a trail of bankruptcy wreckage wherever they go. Idearc filed the bankruptcy after their deal with Verizon went sideways and resulted in the company simply imploding from the inside out. Verizon used techniques to avoid paying taxes on the spinoff as well as involved a tax-loophole better know as Reverse Morris Trust to steer clear of any tax penalties that may incur, all while throwing significant amount of debt onto their deal partners. The Idearc shareholders sued Verizon Communications alleging that Verizon has been constantly involved in dishonorable proceedings.
Many claim that Verizon’s business procedure regarding how they handle taxes is unethical and has serious ramification when one considers consumers, but it is not against the law. The suit filed claims that the issue involving Idearc was just one of three business deals accomplished by Verizon Communication that were followed by quick bankruptcy – Hawaiian Telecommunications Inc., Idearc Inc., and Fairpoint Communications Inc. Accusations from the shareholders claim that Verizon created the spinoff in order to escape federal taxation.
The suit arises as Verizon is preparing to conduct their biggest deal yet involving six million DSL and landline customers and Frontier Communications. Although, as of recent this deal has come under the scrutiny of an Illinois-based Judge who sees that the deal only benefits Verizon and Verizon itself. The case will be determined in the next couple months, although Verizon’s main concern as of recent, is arguing that the FCC should have no influence in business decisions made, in which the probability that the FCC will approve of the deal anyway is likely.