For the last 27 years, bankruptcy courts in the Ninth Circuit consistently held that debt could not be recharacterized as equity unless the movant proved inequitable conduct by the debt holder. On April 30, 2013, the Ninth Circuit Court of Appeals rejected that precedent and joined other circuit courts in holding that bankruptcy courts do have the authority to recharacterize a loan as an equity investment to the extent allowed under state law even without inequitable conduct.
Introduction
The Ninth Circuit held on April 30, 2013 that a bankruptcy court “has the authority to determine whether a transaction creates a debt or an equity interest for purposes of [Bankruptcy Code] § 548, and that a transaction creates a debt if it creates a ‘right to payment’ under state law.” In re Fitness Holdings International, Inc., 2013 WL 1800000, *1 (9th Cir. April 30, 2013). The court agreed with five other circuits, but explicitly followed the reasoning of the Fifth Circuit’s recent In re Lothian Oil, Inc. decision. 650 F.3d 539, 543-44 (5th Cir.
In an important decision for private equity sponsors and other insiders who advance loans to their businesses, on April 30, 2013, the Ninth Circuit Court of Appeals in In re Fitness Holdings International confirmed that bankruptcy courts may recharacterize debt as equity, but held that recharacterization is determined by state law. In its ruling, the Ninth Circuit joins the U.S. Court of Appeals for the Fifth Circuit in deferring to state law on this issue and explicitly rejects the various federal law based tests that have been adopted by a majority of U.S.
The United States Bankruptcy Appellate Panel of the 6th Circuit affirmed the Bankruptcy Court dismissal of five single – asset real estate Debtors’ Jointly Administered Chapter 11 cases under the “For Cause” dismissal provisions of the United States Bankruptcy Code, 11 U.S.C.A. § 1112 (b). see In re Creekside Senior Apartments, LP, et al., 2013 WL 1188061 (6th Cir. BAP Ky.)
In an unpublished decision in In re The Village at Lakeridge, LLC, BAP Nos. NV-12-1456 and NV-12-1474 (B.A.P. 9th Cir. Apr. 5, 2013), the United States Bankruptcy Appellate Panel of the Ninth Circuit held that a vote on a plan of reorganization submitted by a non-insider claimant is not to be disregarded under Bankruptcy Code section 1129(a)(10) merely because the claimant purchased the claim from an insider. In other words, the transferee of a claim does not step into the shoes of the transferor vis à vis the transferor’s status as an insider.
Introduction
The U.S. Bankruptcy Appellate Panel (“BAP”) for the Eighth Circuit held on March 25, 2013, that a lender “lost its possessory lien when it turned the Debtor’s account funds over to the Trustee without first seeking adequate protection.” In re WEB2B Payment Solutions, Inc., _____ B.R. 2013 _____, 2013WL 1188041, *5 (8th Cir. B.A.P. March 25, 2013) (emphasis added).
The homestead exemption is important to the many debtors in bankruptcy who own their own homes. But what if the debtor owns the home through his or her single-member LLC? Is that good enough? A Bankruptcy Appellate Panel recently said no, ruling that a debtor whose home was owned by her single-member LLC could not take advantage of the homestead exemption. In re Breece, No. 12-8018, 2013 WL 197399 (B.A.P. 6th Cir. Jan. 18, 2013).
On January 17, 2013, the United States Bankruptcy Appellate Panel for the First Circuit (the “First Circuit BAP”) rendered its opinion in Massachusetts Department of Unemployment Assistance v. OPK Biotech, LLC (In re PBBPC, Inc.), BAP No. MB 12-042 (B.A.P. 1st Cir. Jan.