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  Los Angeles Lawyer
The Magazine of the Los Angeles County Bar Association
 
 

December 2013     MCLE Test and Answer Sheet

Test No. 230: The Fitness of Recharacterization

 
 

Instructions for Obtaining MCLE Credit

The Los Angeles County Bar Association certifies that this activity has been approved for Minimum Continuing Legal Education credit by the State Bar of California in the amount of 1 hour. To apply for credit, please follow the instructions.

1. Study the CLE article.

2. Answer the test questions by marking the appropriate boxes. Each question has only one answer.

3. Photocopies of this answer sheet may be submitted; however, this form should not be enlarged or reduced. Mail the answer sheet and the $20 testing fee ($25 for non-LACBA members) to:

Los Angeles Lawyer
MCLE Test
P.O. Box 55020
Los Angeles, CA 90055 

Make checks payable to Los Angeles Lawyer.

4. You can also fill in the test form and submit it directly to LACBA by clicking "Submit." To submit your test answers online you will need to pay by credit card. After submitting your answers you will be presented with a screen requesting payment information. This information will be submitted in a secure mode which will allow you to safely transmit your credit card number over the Internet. If you prefer not to pay by credit card, please print this answer sheet and submit your responses by regular mail.

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6. For future reference, please retain the CLE test materials returned to you.

 
  Test Sheet
 
 

Mark your answers to the test by clicking next to your choice.  All questions must be answered.  Each question has only one answer. This test is worth 1 hour of credit.*  

1. The doctrine of equitable subordination is incorporated into the Bankruptcy Code.
 True.
 False.

2. The doctrines of recharacterization and equitable subordination are aimed at the same conduct.
 True.
 False.

3. The Ninth Circuit addressed for the first time the question of whether bankruptcy courts have the power to recharacterize debt to equity in In re Fitness Holdings International, Inc.
 True.
 False.

4. The Ninth Circuit's bankruptcy appellate panel in In re Pacific Express held that bankruptcy courts have the power to recharacterize debt to equity.
 True.
 False.

5. A basic concept underlying the Bankruptcy Code is that claims of creditors are entitled to distribution ahead of holders of equity interests in the debtor.
 True.
 False.

6. The Ninth Circuit's decision in Fitness Holdings rejected the earlier decision of the Ninth Circuit's bankruptcy appellate panel in Pacific Express.
 True.
 False.

7. The doctrine of recharacterization has its roots in tax law.
 True.
 False.

8. The Ninth Circuit was the first Court of Appeals to conclude that bankruptcy courts have the power to recharacterize claims.
 True.
 False.

9. The Ninth Circuit, in Fitness Holdings, found that a transfer that constitutes payment of a debtor's debt cannot be a constructively fraudulent transfer under Section 548 of the Bankruptcy Code.
 True.
 False.

10. In determining whether debt should be recharacterized to equity, the substance of the transaction will govern over the form of the transaction.
 True.
 False.

11. The Ninth Circuit used the bankruptcy court's power under Section 105 of the Bankruptcy Code as the basis for the court's authority to recharacterize debt as equity.
 True.
 False.

12. In Fitness Holdings, the Ninth Circuit found that whether there is a right to payment in the context of bankruptcy is determined by applicable nonbankruptcy law.
 True.
 False.

13. The basic rule in bankruptcy cases is that state law governs the substance of claims.
 True.
 False.

14. The doctrine of recharacterization is explicitly set forth in the Bankruptcy Code.
 True.
 False.

15. In Fitness Holdings, the Ninth Circuit held that a transaction creates a debt if it involves a right to payment under state law.
 True.
 False.

16. The Ninth Circuit, in Fitness Holdings, concluded that a bankruptcy court does not have the power to determine whether a transaction creates a debt or an equity interest for purposes of Section 548 of the Bankruptcy Code.
 True.
 False.

17. The majority approach adopted by Courts of Appeals addressing recharacterization in the bankruptcy context has used multifactor tests imported from tax cases.
 True.
 False.

18. In Fitness Holdings, the Ninth Circuit joined other Courts of Appeals in concluding that the Bankruptcy Code does not provide bankruptcy courts with the power, distinct and independent from equitable subordination, to recharacterize claims.
 True.
 False.

19. In cases involving tax matters, the Ninth Circuit has held that in attempting to determine the true intended substance of a funding transaction, courts consider the economic realities of the transaction at the time it was made and whether the parties intended the funding to be at the risk of the success of the business (equity) or a definite obligation payable in any event (debt).
 True.
 False.

20. In Fitness Holdings, the Ninth Circuit rejected the approach to recharacterization taken by the other Courts of Appeal, except for the Fifth Circuit in In re Lothian Oil.
 True.
 False.

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* The Los Angeles County Bar Association has been approved as a continuing legal education provider of Minimum Continuing Legal Education credit by the State Bar of California. This self-assessment activity will qualify for Minimum Continuing Legal Education credit by the State Bar of California in the amount of one hour.

 


 
   
 

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