United States: Grossman v. Lothian Oil: The Fifth Circuit Takes a Fresh Look at Debt Recharacterization

22 November 2011
Recently, in Grossman v. Lothian Oil Inc. (In re Lothian Oil Inc.),1 the Fifth Circuit for the first time addressed the controversial doctrine of debt recharacterization. While debt recharacterization—a bankruptcy court determination that an alleged debt is actually equity—has gained increasing acceptance by courts in recent years, its many detractors on and off the bench have questioned its legal basis. Debt recharacterization, in contrast to equitable subordination or the subordination of all or part of a claim to all or part of another claim on equitable grounds, is not explicitly authorized by the Bankruptcy Code.