In re Lothian Oil Inc.: Non-Insider Debt Claims May Be Recharacteri...

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]