debt recharacterization

USA

A doctrine allowing bankruptcy courts to treat a "loan" as an equity investment if the facts indicate that the loan was in reality a capital contribution. This cause of action is usually brought against shareholders or other insiders who, before bankruptcy, extended loans to distressed companies on very forgiving terms.

For further information, see Practice Note, Lenders Beware: The Risk of Debt Recharacterization in Bankruptcy (www.practicallaw.com/3-385-6809).