When a company files for bankruptcy, creditors often wonder if they will get paid. The answer depends on the priority and treatment of each claim in the bankruptcy process. Troutman Pepper's Creditor’s Rights Toolkit...more
This practice note discusses how a bankruptcy court may recharacterize documents that purport to create a loan transaction and determine that the transaction, despite labels, is something else—a transaction providing for a...more
It is generally recognized that a bankruptcy court has the power—either equitable or statutory—to recharacterize a purported debt as equity if the substance of the transaction belies the labels the parties have given it. A...more
When is a loan not a loan? The SDNY Bankruptcy Court in In Re: Live Primary, LLC held that a $6 million start-up loan was actually an equity contribution after analyzing the terms of the transaction and the intent of the...more
In the case In re Lehman Brothers Holdings Inc., 855 F.3d 459 (2d Cir. 2017), the U.S. Court of Appeals for the Second Circuit affirmed a district court order subordinating the claims of former Lehman Brothers employees for...more
Section 510(b) of the Bankruptcy Code provides a mechanism designed to preserve the creditor/shareholder risk allocation paradigm by categorically subordinating most types of claims asserted against a debtor by equityholders...more
In In re SGK Ventures, LLC, Case No. 15 C 11224, 2017 WL 2683686 (N.D. Ill. June 20, 2017), Judge Durkin of the District Court for the Northern District of Illinois sets out a thorough analysis for addressing...more
The Supreme Court recently granted certiorari in PEM Entities LLC v. Levin, in which it will decide whether federal or a state law should apply when a debt claim held by a debtor’s insider is sought to be recharacterized in...more
One critical issue affecting complex restructuring cases are efforts by the estate or creditors to recharacterize debt into equity. This can happen in a variety of factual contexts, including where an existing equity...more
The Supreme Court has granted certiorari to decide the question of whether bankruptcy courts should apply state law or a federal rule of decision when determining whether to recharacterize a debt claim as a capital...more
Venture capitalists (“VCs”) often provide needed debt financing such as bridge loans to emerging companies in financial distress. However, given their insider status with these companies, VCs may encounter issues with such...more