30 Jul Debt Equity: Recharacterization of Debt in Bankruptcy Proceedings – And What To Do About It
How can an ostensible lending transaction be recharacterized later on as an equity investment?
When a client decides to extend debt funding to a struggling venture that finds itself in bankruptcy, this loan can later be “recharacterized” as equity, leaving your client to wait at the back of the line behind “true” lenders and lienholders.
On Tuesday (7/28), colleagues Victor Sahn and Jeff Pomerance of SulmeyerKupetz Professional Corporation joined me and about 30 of our friends for a webinar discussion on debt-equity recharacterization and the related (but distinct) concept of claim subordination in bankruptcy.
View it here.
Update: A 3-judge panel of the Tenth Circuit Court of Appeals has very recently issued a decision on this issue (available here), upholding prior authority and deciding a request for recharacterization in favor of the creditor. Along the way, the Tenth Circuit acknowledged a split in the Circuits over the basis for Bankruptcy Courts’ authority to recharacterize claims. Will we see a trip to the Supreme Court?
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