When is a loan
document not evidence of a loan, but rather of an equity investment? In their article, “Ninth Circuit Favors Substance Over Form in Fitness Holdings" Thompson & Knight Partner Ira
L. Herman and Associate Evelyn
Breithaupt discuss the nuances of the Ninth Circuit decision in In re
Fitness Holdings International Inc. (2013 U.S. App. LEXIS 8729). This
ruling and similar decisions permit the recharacterization of an obligation
labeled as debt, as equity. This decision is an important reminder that
although parties may structure a transaction to look like a loan, courts have
the inherent authority to determine what the transaction really is and are not
bound by what it is called. The decision warns that payments made on account of
a recharacterized loan may constitute a distribution on account of an equity
interest, subject to “clawback” as a fraudulent transfer. The article was
published by Law360 on May 6, 2013.
Download Article.
For further information, please contact Ira Herman or Evelyn Breithaupt.