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Subordination and Recharacterization of Claims in Bankruptcy: Avoiding Pitfalls for Lenders, Creditors, and PE Sponsors

March 17, 2021 at 10:00am11:30am (PDT)
Gary M. Kaplan

Gary Kaplan is a featured panelist on this Strafford live webinar, "Subordination and Recharacterization of Claims in Bankruptcy: Avoiding Pitfalls for Lenders, Creditors, and PE Sponsors."

Details:

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 their priority status against junior and unsecured creditors or borrowers facing insolvency or bankruptcy.

Junior or unsecured creditors often assert equitable subordination and recharacterization claims against secured creditors to enhance recovery from highly leveraged debtors. When addressing the liquidity of their portfolio companies, PE sponsors are vulnerable to attacks on their claims.

The Bankruptcy Code also provides for subordination of claims based on the purchase or sale of securities of a debtor or its affiliate, so that such claims are treated as having equal or lesser priority of claims based on the relevant securities.

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.

The subordination and recharacterization doctrines are heavily litigated with 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 subordination and recharacterization in bankruptcy
    1. Equitable subordination
    2. Subordination of claims based on purchase or sale of securities
    3. Recharacterization
    4. Recent case law
    5. 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. Claimants with securities purchase/sale related claims

Click here for more information.

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