July 7 - Members and Subscribers - Welcome to the new and improved abi.org! - If you have not already done so, please reset your ABI password to access the site. Click "Login" and then "Forgot Password"
[1]The New York State Court of Appeals’ decision in Geron v. Seyfarth Shaw LLP[2] reflects the New York courts’ evolving view of the mobility of partners and their clients in large firms. In this decision, the court of appeals held that under New York law, pending hourly fee matters are not “property” or “unfinished business” of a dissolved law firm partnership.
In June 2015, the Tenth Circuit Court of Appeals decided In re Alternate Fuels Inc.,[1] clarifying its position on debt-equity recharacterization in light of two Supreme Court decisions and further entrenching a circuit split on recharacterization analysis. This article provides an in-depth discussion of the case, as well as some thoughts on the implications for recharacterization analysis going forward.
Section 510(b) of the Bankruptcy Code expressly subordinates claims arising from the purchase or sale of a security in the debtor or an affiliate to the level of equity. It thus functions as a form of recharacterization. Despite its broad scope, § 510(b) is relatively underused, making it a potentially powerful tool for creative debtors, committees and trustees.
Section 510(b) Plain Language
Sandwiched between the enforceability of subordination agreements in § 510(a) and equitable subordination in § 510(c), § 510(b) provides:
Courts have held that bankruptcy courts have the authority to recharacterize debt to equity if the circumstances warrant such treatment. However, circuit courts are divided as to which provision of the Bankruptcy Code provides such authority. The majority looks to the court’s equitable powers. The minority holds that the ability must be grounded in the allowance of claims pursuant to state law.
The Majority Approach: Authority to Recharacterization Pursuant to General Equitable Powers
