Contract analysis

1. TAI is a Delaware C-Corporation with its principal office located at 1400 McKinney Street, Suite 2200, Houston, Texas 77010. TAI's registered agent for service of process in Delaware is Capitol Registered Agents LLC, located at 1209 Orange Street, Wilmington, Delaware 19801. TAI's Employer Identification Number is 84-3291057.

2. TAI is a wholly-owned subsidiary of Thalassa Shipping & Logistics Société Anonyme ("TSL"), a Greek société anonyme organized under the laws of the Hellenic Republic, with its principal offices at 42 Akti Miaouli, Piraeus 18538, Greece. TSL was founded in 1987 by the Kostandinos family and remains one of the leading independent shipping and integrated logistics enterprises in the Eastern Mediterranean and transatla

3. TAI conducts the U.S.-side operations of the TSL enterprise, including (a) Houston terminal operations at the Port of Houston, (b) Jones Act–exempt foreign-flag vessel scheduling for TSL's fleet, and (c) domestic freight brokerage services. TAI employs approximately 680 individuals in the United States across its various business segments, substantially all of whom are based in the Houston, Texas metropolitan area

4. TAI generated total revenue of approximately $312 million for the fiscal year ended December 31, 2021 ("FY2021"). Due to a sharp decline in global dry-bulk charter rates and the broader deterioration of conditions in the international shipping market, TAI's estimated revenue for the fiscal year ended December 31, 2022 ("FY2022") declined to approximately $198 million, representing a year-over-year decrease of appr

5. The Debtor commenced this Chapter 11 case on [DATE] (the "Petition Date") by filing a voluntary petition for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (the "Bankruptcy Code"). The Debtor continues to operate its business and manage its properties as debtor-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.

6. By this Motion, the Debtor seeks entry of an order authorizing, but not directing, the Debtor to pay certain prepetition taxes, fees, and assessments (collectively, the "Prepetition Tax Obligations") owed to various federal, state, and local governmental authorities (the "Taxing Authorities"), in an aggregate amount not to exceed $[●] million. The Debtor submits that timely payment of the Prepetition Tax Obligatio

7. The factual background concerning the Debtor's business, the nature and causes of the liquidity crisis that precipitated the commencement of this Chapter 11 case, and the Debtor's restructuring objectives are set forth in greater detail in the Declaration of Marcus Hale in Support of First-Day Motions (the "Hale Declaration"), filed contemporaneously herewith and incorporated herein by reference.

8. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). The Debtor confirms that it consents to entry of a final order by this Court in the event that it is determined that this Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States C

9. Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. TAI's principal office is located at 1400 McKinney Street, Suite 2200, Houston, Texas 77010, which is within the Southern District of Texas (Houston Division). TAI's principal assets in the United States, including the Houston terminal facility and related equipment, are situated within this District.

10. The statutory predicates for the relief requested herein are sections 105(a), 363(b), 507(a)(8), and 541 of the Bankruptcy Code, as well as Bankruptcy Rules 6003, 6004, and 9014, and the Local Rules of the United States Bankruptcy Court for the Southern District of Texas.

III. BACKGROUND A. The Debtor and Its Business

11. TAI is a Delaware C-Corporation (EIN 84-3291057), wholly-owned by TSL (Greek société anonyme, AFM 998214763). As set forth more fully in the Hale Declaration, TSL owns and operates a fleet of approximately fifty (50) vessels, consisting of thirty-eight (38) dry-bulk carriers and twelve (12) container vessels. TSL provides integrated port-to-door logistics services across the Mediterranean Sea, the Black Sea, and

12. TSL's approximate global workforce numbers approximately 4,200 employees, of whom approximately 680 are employed by TAI in the United States. TAI's U.S.-based operations encompass three principal business lines: (a) Houston terminal operations, through which TAI manages cargo handling, storage, and distribution activities at the Port of Houston; (b) foreign-flag vessel scheduling services for TSL's fleet of vesse

13. TAI's key officers are: Marcus Hale (President, age 48), who has served as President of TAI since 2018 and has over twenty years of experience in the shipping and logistics industry; Diana Restrepo (Vice President, Finance, age 41), who oversees all financial reporting, treasury, and tax compliance functions for TAI; and Jonathan Kurtz (Vice President, Operations, age 45), who is responsible for the day-to-day ma

14. The Debtor's prepetition capital structure is complex and multi-layered. The following summary is based on information available as of September 30, 2022, and is described in greater detail in the Hale Declaration.

15. Senior Secured Credit Facility. On June 15, 2019, TSL and TAI (as co-borrowers) entered into a Senior Secured Credit Facility (the "Senior Secured Facility") with Nordbank International AG, as Administrative Agent and Collateral Agent, and a syndicate of eight additional lending institutions. The Senior Secured Facility provides for a total commitment of $685 million, structured in three tranches: (a) Term Loan A

16. As of September 30, 2022, the total amount outstanding under the Senior Secured Facility was approximately $540 million, comprised of approximately $270 million under the TLA, approximately $185 million under the Revolver, and approximately $85 million under the TLB. The Senior Secured Facility is secured by substantially all of the assets of TSL and TAI, including vessel mortgages, assignment of earnings, and a

17. Mezzanine Notes. TAI is the issuer of certain second-lien mezzanine notes (the "Mezzanine Notes") held by Dralvecen Mezzanine Capital LLC ("Dralvecen"). The Mezzanine Notes were originally issued in the principal amount of $100 million and bear interest at a rate of 11.5% per annum on a PIK toggle basis. As of September 30, 2022, the outstanding principal amount of the Mezzanine Notes, inclusive of $12.3 million

18. Senior Unsecured Notes. TAI is also the issuer of $50 million in aggregate principal amount of 8.25% Senior Unsecured Notes (the "Unsecured Notes"), with semi-annual cash-pay interest and a maturity date of March 1, 2025. Garrison Trust Company serves as indenture trustee under the indenture governing the Unsecured Notes.

19. Intercompany Note. TAI is the obligor under an intercompany promissory note payable to TSL in the principal amount of approximately $76.4 million (the "Intercompany Note"). The Intercompany Note is subordinated to all external indebtedness of TAI.

20. In the aggregate, TAI's total indebtedness as of September 30, 2022, including trade payables of approximately $38.7 million and other accrued liabilities, was approximately $847.3 million. C. Events Leading to the Filing

21. The liquidity crisis that precipitated the commencement of this Chapter 11 case was driven primarily by the precipitous decline in global dry-bulk charter rates during 2022. The Baltic Dry Index, a widely followed benchmark for the cost of shipping raw materials by sea, declined approximately 58% between January 2022 and September 2022. As a consequence, TSL's average daily Time Charter Equivalent ("TCE") revenue

22. The deterioration in charter rates directly and severely impacted TAI's revenue, operating cash flow, and ability to service its considerable debt obligations. The following key milestones illustrate the progression of TAI's financial distress: (a) September 15, 2022: TAI breached the Minimum Liquidity Covenant under the Senior Secured Facility, reporting cash and cash equivalents of approximately $27.3 million a

23. The foregoing events, together with additional facts and circumstances described in the Hale Declaration, necessitated the commencement of this Chapter 11 case. The Debtor respectfully refers the Court to the Hale Declaration for a complete recitation of the prepetition events and the Debtor's restructuring objectives.

IV. THE PREPETITION TAX OBLIGATIONS A. Overview of Tax Categories

24. In the ordinary course of its business operations, the Debtor incurs and/or collects various taxes, fees, and assessments payable to federal, state, and local Taxing Authorities. These obligations arise from TAI's status as a corporate taxpayer, an employer of approximately 680 individuals, an operator of port terminal facilities, a participant in international trade subject to customs regulation, and a provider

25. As of the Petition Date, the Debtor estimates that it owes approximately $[●] million in aggregate Prepetition Tax Obligations. These obligations fall into the following principal categories, each of which is described in greater detail below: (a) federal income taxes; (b) state income and franchise taxes; (c) employment and payroll taxes; (d) sales and use taxes; (e) property taxes; (f) customs duties, port fees

26. TAI files federal income tax returns as a C-Corporation (EIN 84-3291057) and is subject to the corporate income tax imposed by Subchapter C of the Internal Revenue Code of 1986, as amended (the "IRC"). In the ordinary course, TAI makes estimated quarterly federal income tax payments in accordance with 26 U.S.C. § 6655, based upon its estimated annual taxable income.

27. As of the Petition Date, the Debtor estimates that it has accrued and unpaid federal income tax obligations relating to both the current fiscal year and the immediately preceding fiscal year. The Debtor notes that TAI has experienced a significant decline in revenue during FY2022 (estimated $198 million, down from $312 million in FY2021), which has had a corresponding impact on TAI's taxable income and the amount

28. Texas. Although Texas does not impose a traditional state income tax, TAI is subject to the Texas franchise tax (commonly referred to as the "margin tax"), which is imposed on entities doing business in the State of Texas based on a taxable margin calculation. TAI maintains its principal office in Houston, Texas, operates the Houston terminal, and generates substantial revenues attributable to Texas, giving rise

29. Delaware. As a corporation organized under the laws of the State of Delaware, TAI is obligated to pay the Delaware annual franchise tax and annual report fee to the Delaware Division of Corporations. TAI's registered agent is Capitol Registered Agents LLC, located at 1209 Orange Street, Wilmington, Delaware 19801. The Debtor estimates that annual franchise tax and registered agent fees may be accrued and unpaid a

30. Other States. TAI may have established nexus and may be subject to state income or franchise tax obligations in other jurisdictions arising from its freight brokerage and logistics operations, which involve the arrangement of transportation services across multiple states. The Debtor is in the process of reviewing its multi-state tax compliance obligations and reserves the right to supplement the record in this r

31. TAI employs approximately 680 individuals in the United States, substantially all of whom work at or from TAI's Houston, Texas offices and terminal facilities. As an employer, TAI is responsible for range federal and state employment and payroll tax obligations, including: (a) Federal Payroll Taxes. TAI is obligated to pay the employer's share of Federal Insurance Contributions Act ("FICA") taxes, consisting of S

32. The Debtor wishes to emphasize the critical importance of timely remittance of trust-fund taxes. Failure to collect, account for, and pay over trust-fund taxes exposes the Debtor's officers and directors who qualify as "responsible persons" — including, without limitation, Marcus Hale (President) and Diana Restrepo (Vice President, Finance) — to the personal "trust fund recovery penalty" imposed by 26 U.S.C. § 66

33. In connection with its logistics and freight brokerage operations, TAI collects sales and use taxes on certain taxable transactions. These collected amounts are held in trust by the Debtor for the benefit of the applicable state and local taxing authorities and, like employee payroll withholdings, are not in substance property of the estate.

34. TAI's primary sales tax obligations arise under the Texas sales tax, which TAI collects on applicable taxable transactions and remits to the Texas Comptroller of Public Accounts. TAI may also have sales or use tax collection and remittance obligations in other states where it conducts taxable activities in connection with its multi-state freight brokerage and logistics operations.

35. The trust-fund character of collected sales taxes is analogous to that of employee payroll withholdings, and the Debtor submits that similar considerations support the authorization of payment of prepetition sales tax obligations. See Section VI.D, infra. F. Property Taxes

36. TAI is subject to real and personal property tax assessments levied by Harris County, Texas, and applicable taxing districts within Harris County, on TAI's Houston terminal facility and the office lease improvements at 1400 McKinney Street, Suite 2200, Houston, Texas 77010.

37. In addition, TAI is subject to tangible personal property taxes assessed by Harris County and applicable local taxing jurisdictions on equipment, fixtures, and improvements located at the Houston terminal. The Debtor estimates that certain property tax installments may have accrued and remain unpaid as of the Petition Date.

38. Under Texas law, unpaid property taxes give rise to a statutory lien on the subject property, and taxing authorities have broad enforcement powers, including the ability to foreclose on the tax lien. Payment of prepetition property tax obligations is therefore essential to protect the estate's interest in the Debtor's real and personal property assets located in Harris County. G. Customs Duties, Port Fees, and Re

39. As a participant in international trade and the operator of a port terminal facility, TAI incurs range customs duties, port fees, and regulatory assessments in the ordinary course of its business, including: (a) U.S. Customs and Border Protection ("CBP") Duties and Fees. TAI is subject to customs duties and user fees assessed by CBP in connection with TAI's freight brokerage and vessel scheduling operations, incl

40. Non-payment of customs duties and port fees could result in CBP enforcement actions, detention of cargo, and disruption of TAI's terminal and vessel scheduling operations. Non-payment of Coast Guard and environmental fees could jeopardize TAI's ability to operate the Houston terminal. The Debtor therefore requests authority to pay all such prepetition obligations as part of the Prepetition Tax Obligations. H. Oth

41. In addition to the foregoing categories, TAI incurs in the ordinary course various other taxes, fees, and assessments payable to governmental authorities, including: (a) Business license and permit fees payable to the City of Houston, Harris County, and the State of Texas, which are necessary for TAI to maintain its authority to conduct business at the Houston terminal and elsewhere in the State of Texas. (b) Mis

42. The Debtor seeks authority to pay all such obligations as part of the relief requested herein, to the extent such obligations are accrued and unpaid as of the Petition Date.

43. By this Motion, the Debtor seeks entry of an order, substantially in the form attached hereto as Exhibit A (Proposed Interim Order) and Exhibit B (Proposed Final Order), authorizing, but not directing, the Debtor to pay the Prepetition Tax Obligations in an aggregate amount not to exceed $[●] million (inclusive of all categories described in Section IV above).

44. The Debtor requests that the authorization to pay Prepetition Tax Obligations be exercised in the Debtor's business judgment, in consultation with the Debtor's financial advisor, Kensington Veltrian Partners LLC (James Calloway, Managing Director), and the Debtor's proposed counsel, Calderwood & Harkness LLP. The Debtor's management, in coordination with these advisors, will evaluate each Prepetition Tax Obligati

45. In addition, the Debtor requests authorization to pay both currently due Prepetition Tax Obligations and to satisfy any arrearages, penalties, and interest on such obligations as may be necessary to maintain good standing with the applicable Taxing Authorities, avoid the imposition or perfection of tax liens, and prevent enforcement actions including levies, seizures, and revocation of licenses and permits.

46. The Debtor further requests that the Court authorize all applicable banks and financial institutions to honor and process the Debtor's checks and electronic fund transfers in furtherance of the payments authorized by the relief requested herein, without regard to whether such checks or transfers were drawn, initiated, or presented prior to or after the Petition Date, provided that sufficient funds are available i

VI. BASIS FOR RELIEF A. Section 363(b) — Sound Business Judgment

47. Section 363(b)(1) of the Bankruptcy Code provides that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. § 363(b)(1). Courts in the Fifth Circuit and the Southern District of Texas have consistently held that a debtor-in-possession may be authorized to pay prepetition obligations outside the ordinary course of bus

48. The "business judgment" standard requires a showing that the proposed payment (i) is necessary to avoid disruption to the debtor's ongoing operations, (ii) is beneficial to the estate and its stakeholders, and (iii) is supported by adequate consideration. See In re Dynegy, Inc., No. 11-38111 (Bankr. S.D. Tex. 2011); In re Southmark Corp., 49 F.3d 1111 (5th Cir. 1995). The Debtor submits that payment of the Prepet

49. First, payment is necessary to avoid disruption to TAI's ongoing operations. Failure to pay prepetition taxes could result in the imposition of tax liens, the commencement of governmental enforcement actions, the revocation of business licenses and permits, and the personal liability of TAI's officers — any one of which would materially impair the Debtor's ability to continue operating its business during this Ch

50. Second, payment is beneficial to the estate and its stakeholders. As discussed below, the vast majority of the Prepetition Tax Obligations constitute priority claims under § 507(a)(8) of the Bankruptcy Code, which would be required to be paid in full under any confirmable plan of reorganization. Early payment of these obligations does not prejudice the estate but rather avoids the accrual of additional penalties

51. Third, the payment is supported by adequate consideration, as the Debtor receives the direct benefit of compliance with applicable tax laws, the avoidance of penalties and enforcement actions, and the preservation of its ability to operate in the ordinary course. B. Section 507(a)(8) — Priority Status of Tax Claims

52. Many of the Prepetition Tax Obligations constitute priority claims under section 507(a)(8) of the Bankruptcy Code. Section 507(a)(8) grants priority status to the following categories of tax claims, among others: (a) Income or Gross Receipts Taxes. Under § 507(a)(8)(A), a tax on or measured by income or gross receipts is entitled to priority status if it relates to a taxable year ending on or before the date of t

53. Because priority tax claims must be paid in full under any confirmable Chapter 11 plan of reorganization pursuant to section 1129(a)(9)(C) of the Bankruptcy Code, the early payment of these obligations merely accelerates the timing of payments that creditors would ultimately receive in any event. Accordingly, payment of the Prepetition Tax Obligations at this time does not prejudice the rights or recoveries of an

54. Section 105(a) of the Bankruptcy Code provides that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a). Courts in this District have routinely invoked the equitable powers conferred by § 105(a) to authorize the payment of prepetition tax obligations in first-day motions where such payment is necessary to prevent ha