By: David N. Saponara
St. John’s Law Student
Shifting the focus of the recharacterization analysis, the Fifth Circuit in
Grossman v. Lothian Oil Inc. (In re Lothian Oil Inc.)[1] relied upon section 502(b)(1) and applicable state law, instead of the section 105(a) federal equitable power, to recharacterize non-insider debt claims as equity.
[2] In doing so, the Fifth Circuit reversed the district court, which had found that recharacterization is only appropriate where the claimant is a corporate insider.
[3]