Our first-of-its-kind analysis identified at least $259 million in publicly subsidized cleanups at more than 100 sites linked to Michigan’s automotive industry. Here’s why the tab is almost certainly far higher.
When lenders use an aggressive strategy to deal with a financially troubled borrower that ultimately files for bankruptcy protection, stakeholders in the case, including chapter 11.
Overview
In a recent decision,
In re Live Primary, LLC, 626 B.R. 171, 178 (Bankr. S.D.N.Y. 2021), the Bankruptcy Court for the Southern District of New York found that a $6 million debt claim arising from purported loans to a debtor from one of its members should be recharacterized as an equity interest. Although debt held by insiders and shareholders is often closely scrutinized when a debtor files for chapter 11 protection, recharacterization of this nature remains a rare form of relief so long as the lender has adhered to basic loan formalities. However, when dealing with unique facts and circumstances such as those presented in
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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 ruling handed down by the U.S. Bankruptcy Court for the Southern District of New York provides a textbook example of such a recharacterization. In
In re Live Primary, LLC, 2021 WL 772248 (Bankr. S.D.N.Y. Mar. 1, 2021), the court held that a purported loan made to a startup limited liability company by one of its members should be treated as a capital contribution because, among other things, the company was inadequately capitalized and the unsecured loan was not properly documented, bore a
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