How the Recharacterization of Debt Impacts Creditors The line between a loan and an equity investment isn’t always clear. In these cases, those who represent unsecured creditors can impact the distribution on claims in the creditor’s favor. This is done through the recharacterization of debt. In bankruptcy, a debt claim has a higher priority […]
In part one of our series on recharacterization, we discussed the elements of judicial recharacterization of loans as equity interests.[i] In part two of the series, we considered how debtors can “claw back” putative “loans” that they may have repaid years earlier because the “loans” were in fact equity investments and their repayment was invalid.[ii] […]
In our last article[i], we discussed the judicial recharacterization of loans as equity interests. As we described, a court will recharacterize a lender’s debt claim as equity if it determines the “loan” actually was intended to be, and was treated by the parties as, an equity investment. Recharacterization is a powerful tool for creditors and […]