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November 28, 2016
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Fourth Circuit Approves Recharacterization of Secured Debt Into Equity

The Editorial Staff of Commercial Bankruptcy Investor


A Brief Summary of PEM Entities​: Unsecured Creditors Pulled Down a Secured Creditor In its recent unpublished opinion PEM  Entities, LLC v. Province Grande Old Liberty, LLC, 2016 WL 4254917, (4th Cir. Aug. 12, 2016), the Fourth Circuit Court of Appeals affirmed the bankruptcy court’s award of summary judgment to certain unsecured creditors (the “Plaintiffs”) who had sued a putative holder of a very large secured debt --who would rank ahead of the Plaintiffs’ unsecured claims...

April 25, 2016
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90 Second Lesson: What is the Difference Between Recharacterization and Equitable Subordination?

From the Editorial Staff of DailyDAC.com


Editors’ Note:  This is part of our irregular series in which we answer readers’ questions. If you have a question, submit it to info@dailydac.com and we will try to answer it.    QUESTION:  Jeff P. from Los Angeles emailed asking us to explain the interplay between recharacterization and equitable subordination? ANSWER:  While recharacterization and equitable subordination are often mentioned in the same breath, the underlying purposes of these doctrines—and the analysis conducted by courts in evaluating claims...

January 23, 2014
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How Unsecured Creditors Push Ahead of Lenders Who in Fact Invested, Part III – Equitable Subordination vs. Recharacterization

 

  • Lawrence V. Gelber
  • James T. Bentley
  • Schulte Roth & Zabel LLP
  • New York, New York
  • (212) 756-2000
  • lawrence.gelber@srz.com
  • james.bentley@srz.com

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 this finale of the series, we contrast recharacterization with equitable subordination, which is another means by which some creditors...

October 28, 2013
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How Unsecured Creditors Push Ahead of Lenders Who in Fact Invested, Part II - Clawback of "Loan Repayments"

 

  • Lawrence V. Gelber
  • James T. Bentley
  • Schulte Roth & Zabel LLP
  • New York, New York
  • (212) 756-2000
  • lawrence.gelber@srz.com
  • james.bentley@srz.com

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 trustees because, under the Bankruptcy Code's priority scheme, debt claims (and all general unsecured claims) must be repaid in full...

October 3, 2013
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How Unsecured Creditors Push Ahead of Lenders Who in Fact Invested, Part I – What is Recharacterization?

 

  • Lawrence V. Gelber
  • James T. Bentley
  • Schulte Roth & Zabel LLP
  • New York, New York
  • (212) 756-5000
  • lawrence.gelber@srz.com
  • james.bentley@srz.com

When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck. -James Whitcomb Riley In bankruptcy, a debt claim has a higher priority than an equity interest (or share) in the debtor company, and should be (and ordinarily is) paid in full before equityholders receive any distribution from the debtor.  Better, then, to acquire or hold a debt claim --...



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