Courts Recharacterizing Insider 'Loans' as Equity [The Legal Intelliencer]

In an opinion issued April 30, In re Fitness Holdings International, 2013 U.S. App. LEXIS 8729, the U.S. Court of Appeals for the 9th Circuit joined a number of other circuit courts in recognizing the authority of courts to recharacterize purported debt owed by a corporation as equity. The case serves as reminder to shareholders and other corporate insiders that an insider’s contribution of funds to a debtor must be treated as a loan, and not an equity contribution, if it is to give rise to a claim in bankruptcy rather than a mere equity interest.

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