Case Study: In Re Lothian Oil

Law360, New York (September 26, 2011, 2:07 PM EDT) -- The U.S. Court of Appeals for the Fifth Circuit recently confronted a question faced by several other courts in recent years: Under what circumstances, if any, may a claim asserted against a debtor's estate be recharacterized by the bankruptcy court as an equity investment rather than a debt? In In re Lothian Oil Inc., the Fifth Circuit joined the majority of appellate courts that have ruled on this issue in holding that the bankruptcy court has the authority to "recharacterize" debt as equity.[1]

In doing so,...
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