Equitable Subordination and Recharacterization of Loans: Avoiding Pitfalls for Lenders, Creditors and PE Sponsors

Navigating Differing Court Standards in Bringing or Defending Bankruptcy Preference Actions

Recording of a 90-minute CLE webinar with Q&A


Conducted on Thursday, April 13, 2017
Recorded event now available


This CLE webinar will offer best practices for counsel to lenders, creditors and private equity sponsors to structure transactions and lending practices to protect their claims and maintain preference status against junior and unsecured creditors or borrowers facing insolvency or bankruptcy.

Description

Equitable subordination and recharacterization claims are asserted against secured creditors by junior or unsecured creditors to obtain recovery from highly leveraged debtors. When addressing liquidity of their portfolio companies, PE sponsors are vulnerable to attacks on their claims.

Recharacterization claims usually involve insiders like stockholders, directors and officers. However, the doctrine is not limited to corporate insiders, and courts will scrutinize both the debt instrument and the creditor’s status.

Both doctrines have been heavily litigated with many recent cases that reflect the continued inconsistency among circuit courts and differing standards used among courts to scrutinize various loan transactions.

Listen as our authoritative panel of bankruptcy attorneys discusses the looming threats of equitable subordination and recharacterization in bankruptcy, and how lenders, creditors and PE sponsors can minimize exposure and protect their claims.

Outline

  1. Overview of equitable subordination and recharacterization
    1. Equitable subordination
    2. Recharacterization
    3. Recent case law
    4. Litigation considerations
  2. Minimizing attacks on the claim
    1. Secured lenders:
      1. Underwriting
      2. Collateral review
    2. PE sponsors
      1. Anticipating liquidity problems
      2. Internal governance procedures
      3. Arm's length transactions
      4. Management rights or other control of business operations
    3. Creditors
      1. Non-statutory insiders
      2. Earmarking defense

Benefits

The panel will review these and other key issues:

  • How have the courts defined “inequitable conduct” to justify equitable subordination?
  • What factors do the courts use to distinguish a loan transaction from an equity investment to justify recharacterization?
  • How can PE sponsors loaning money to their portfolio companies protect themselves from attack?

Faculty

Lawrence V. Gelber, Partner
Schulte Roth & Zabel, New York

Mr. Gelber concentrates his practice in the areas of distressed mergers & acquisitions, debtor-in-possession financing, corporate restructuring, creditors' rights and prime brokerage insolvency/counterparty risk. His extensive experience in Chapter 11 reorganization cases includes his representation of debtors, secured and unsecured creditors, lenders, investors and acquirers. He is a regular contributor to The Bankruptcy Strategist, Bankruptcy Law360 and Norton Bankruptcy Law Adviser and frequently presents at conferences.

James T. Bentley, Special Counsel
Schulte Roth & Zabel, New York

Mr. Bentley represents financial institutions, private equity firms and others in reorganizations and out-of-court workouts. He advises clients on financings, acquisitions, corporate restructurings and workouts. He litigates creditors’ rights issues, negotiates loan modifications, forbearance agreements and other workout solutions, and assists clients with loan and claim dispositions. He works with a variety of international and domestic clients in connection with structuring bankruptcy-remote vehicles to purchase loan and debt portfolios and analyzing bankruptcy risks associated with such transactions.

Gabrielle Glemann, Counsel
Hughes Hubbard & Reed, New York

Ms. Glemann is a member of her Firm's corporate reorganization department. She focuses her practice on banking & financial services, corporate reorganization and bankruptcy and securities litigation. She represents debtors, trustees, examiners, and secured and general creditors in Chapter 7 and Chapter 11 bankruptcies, out-of-court workouts, as purchasers in auctions of assets of bankrupt entities, and in adversary and collateral proceedings. Previously, she practiced bankruptcy litigation and advised clients with respect to secured financing and out-of-court workouts at Luskin, Stern & Eisler.


Recordings

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Strafford is an approved provider and self-study CLE credit is available in most states.

AK, AZ, CA, CO, CT, FL, GA, HI, IA, ID, IL, KY, ME, MN, MO, MT, ND, NJ, NM, NY, OR, PA, TN, TX, UT, VT, WA, WV, WY (Note: Some states restrict CLE eligibility based on the age of a program. Refer to our state CLE Map for additional information.)

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Program Materials

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Program Materials

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Customer Reviews

The speakers gave an excellent presentation, and their comments appeared to come from actual experience, with real-life illustrations, which added to the value of the seminar.

Cheryl D. Cook

O'Reilly Rancilio

The presentation was most interesting when it fit the substance into scenarios of actual lawyering.

Christopher Cahill

Lowis & Gellen

The program material was very well organized and thorough.

Laura Buckley

Higgs, Fletcher & Mack

Points were clear and followed the presentation materials. Each speaker sounded confident in their presentation.

Bonnie L. Schmidt

Willkie Farr & Gallagher

The webinar was very informative on very pertinent matters and had a good flow.

Noam Wiener

Allen & Overy

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Bankruptcy Law Advisory Board

Mark N. Berman

Adjunct Professor

Northeastern University

Michael E. Foreman

Partner

ForemanLaw

Matthew Gensburg

Shareholder

Greenberg Traurig

Brian E. Greer

Partner

Dechert

Douglas Lipke

Shareholder

Vedder Price

Victor Milione

Partner

Nixon Peabody

Steven B. Smith

Senior Consultant

JND Corporate Restructuring

Michael Solow

Partner

Kaye Scholer

Robert A. Weber

Counsel

Skadden Arps Slate Meagher & Flom

or call 1-800-926-7926

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