Noninsider Debt Claims Can Be Equity, 5th Circ. Says

Law360, New York (August 9, 2011, 10:37 PM EDT) -- The Fifth Circuit on Tuesday ruled that a noninsider creditor's claims against bankrupt oil company Lothian Oil Inc. can be characterized as equity rather than debt, siding with a bankruptcy court in a precedential reversal of a lower court's ruling.

Plaintiff Israel Grossman had loaned Lothian $350,000 in exchange for a 1 percent royalty on the gross production Lothian received out of certain properties in New Mexico. The agreement also stipulated that Grossman would be repaid from the proceeds of an equity placement made in Lothian,...
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