Structuring Shareholder Loans to Reduce Risks in Bankruptcy

Foley Partner Gregory Monday authored an article that appeared in the Summer 2010 issue of Family Business titled “Structuring shareholder loans to reduce risks in bankruptcy.” Monday discusses how family businesses can structure insider loans according to 11 key factors so that a bankruptcy court may not re-characterize them as capital contributions. He states that the loans should be recoverable to a much greater extent than capital contributions if the company were to be liquidated in bankruptcy, but adds that the court’s power to re-characterize loans is still developing and could be changed by the Supreme Court or Congress.