In The (Red)®

In The (Red)®

The Business Bankruptcy Blog

Tag Archives: subordination

Mandatory Subordination: How Even A Money Judgment Can Be Treated Like Equity In Bankruptcy

Posted in Business Bankruptcy Issues, Recent Developments
When an insolvent entity files for bankruptcy, it can be tough to be a creditor. But holding equity — stock in a corporation or a membership interest in an LLC, a limited liability company — can be even worse. Under bankruptcy’s “absolute priority rule,” creditors generally must be paid in full before equity gets anything. That usually… Continue Reading

Ninth Circuit Opens The Door To Recharacterization Of Debt As Equity

Posted in Business Bankruptcy Issues, Recent Developments
In bankruptcy, prepetition loans made by insiders are often investigated, and sometimes challenged, by debtors, creditors’ committees, or trustees. The two most frequent challenges brought are that (1) the loans in question are not really debt and should be recharacterized as equity, and (2) the debt should be equitably subordinated below the claims of all or some other creditors. Recharacterization focuses… Continue Reading

Second Liens And Recharacterization: Is More Litigation Around The Corner?

Posted in Business Bankruptcy Issues, The Financially Troubled Company
In many Chapter 11 bankruptcy cases, unsecured creditors investigate whether a basis exists to recharacterize existing secured debt as equity. The reason? A successful challenge can turn first or second lien secured debt into "back-of-the-line" capital contributions, enabling unsecured creditors to realize a much greater recovery. A recent article by two of my Bankruptcy & Restructuring Group colleagues at Cooley Godward Kronish LLP, Ronald R. Sussman… Continue Reading

Second Liens and Intercreditor Agreements: Are Those Bankruptcy Voting Provisions Really Enforceable?

Posted in Business Bankruptcy Issues, Recent Developments
In this post I look at the second lien phenomenon and then discuss an interesting new case addressing whether a fairly common intercreditor agreement provision — giving a senior lender the right to vote a second lien lender’s claim in bankruptcy — will actually be enforced. Senior Debt And Mezzanine Financing. When a company borrows from… Continue Reading