Loan Can Be Re-Characterized as Equity for Fraudulent Conveyance Purposes
The Court of Appeals for the Ninth Circuit has joined other circuits in holding that the bankruptcy court has the authority to re-characterize a debt obligation as equity in the context of a fraudulent transfer avoidance action under the Bankruptcy Code. For third-party, non-insider creditors, the Fitness Holdings decision is a helpful tool to restore assets to the debtor’s estate that were transferred to the holder of an equity interest in the guise of a debt repayment.