Owoc v. Liquidating Trustee on Behalf of Liquidating Trust, — F.4th —-, 2026 WL 2294569 (11th Cir. August 10, 2026) (click for .pdf). The issue on appeal was whether a corporate debtor’s Subchapter S election constitutes property of the bankruptcy estate. Pursuant to a Chapter 11 plan, the debtor corporation’s reconstituted board removed the sole shareholder, John Owoc, from his position as chief executive officer and board member, although he remained the sole shareholder post-confirmation. Owoc thereafter sought relief from the automatic stay to terminate the debtor’s Subchapter S status. The Bankruptcy Court denied the motion because the company’s “S election gives it the valued right to avoid tax liability” and, therefore, the S election is property of the estate and protected by the automatic stay. The decision was appealed to the District Court, which certified a direct appeal to the Eleventh Circuit Court of Appeals.
The Court, citing the Third Circuit case of Majestic Star Casino, LLC v. Barden Dev., Inc. (In re Majestic Star Casino, LLC), 716 F.3d 736, 757 (3d Cir. 2013), held that the Subchapter S election is not property of the bankruptcy estate because the shareholders, and not the debtor, control its tax classification. “[T]he shareholders control the creation and termination of eligibility for Subchapter S status.” Although the company received a significant tax benefit from the election, the shareholders have the legal power to revoke or terminate the election. Therefore, the company does not have a legitimate claim or entitlement to the election.
The Court, therefore, reversed the lower courts and held that the Subchapter S election is not property of the bankruptcy estate pursuant to 11 U.S.C. § 541. This abbreviated summary omits the substantive discussion of equitable mootness, law of the case, and laches.
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