Equity interest
| Equity interest |
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| See also |
Equity interest is generally defined as shares in an entity other than instruments which, under local law, are treated as debt and which do not have material characteristics of shares. "Profits interest in a partnership, an undivided ownership interest in property and a beneficial interest in a trust would be treated as equity interests". The question of whether interest in the plan is an equity interest is, in fact, factual, the instrument will not cease to be a debt instrument just because it has certain capital features, such as additional variable interest and conversion rights - which are associated with a basic permanent obligation. The plan would not acquire equity when it acquired a convertible debenture if the exchange is linked to the initial obligation to pay principal and interest. The plan would acquire "equity participation" when it exercises the option of converting the debt into shares of the issuing company [1].
Shares in capital, conceptually, are a subset of another share, as intended, which may also result from a grid of specific economic interests. "In the context of equity interest, variable interest illustrates another occurrence of the disassociation between the concept of ownership interest and residual interest. The equity interest may be part of the concept of variable interest if the entity is a Views on Equity Implications and total at-risk equity investment is not sufficient to finance the entity's activities"[2].
The type of equity interest will depend on the borrower's classification. Since the asset of the borrower as a common asset would normally hedge the borrower's obligations under the loan, a change in the characteristics of the capital would be equivalent to the exclusion of the borrower's collateral[3].
Allowed Equity Interest
Only the creditor or equity holder with admissible equity participation has the right to vote on the Plan. In principle, equity participations are permissible if
- the debtor planned the claim in accordance with the debtor's schedule unless the claim was planned as disputed, contingent or illiquid, or
- the creditor has submitted a claim or equity participation unless an objection has been raised to such proof of share capital.
If equity participation is not allowed, the creditor or shareholder holding equity participation may not vote unless the court, after notice and hearing, either annuls the opposition or allows equity participation for voting purposes in accordance with Rule of the Federal Bankruptcy Rule [4].
References
- Bellandi F., (2012), Dual Reporting for Equity and Other Comprehensive Income under IFRSs and U.S.GAAP, John Wiley & Sons Ltd., United Kingdom
- Press D. M., Weiss B., (2012), Chapter 11 for Individual Debtors: A Collier Monograph, Matthew Bender & Company, Inc., a member of the LexisNexis Group, United States
- Reinholtz J., Pope E., (2004), Pension and Employee Benefits: Preambles to final and temporary regulations, CCH Pension Plan Guide, United States
- Sheinfeld M. M., Witt F. T., Hyman M. B., (2017), Collier on Bankruptcy Taxation, LexisNexis, United States
Footnotes
Author: Weronika Nowak
