Redmond v. Cimarron Energy Co. (In re Alternate Fuels, Inc.)

MOSIER, Bankruptcy Judge.

Recharacterization is an equitable remedy that allows courts to ignore a party’s characterization of a transaction and, instead, give effect to the transaction’s actual substance. In bankruptcy cases, under certain circumstances, a transaction labeled as a loan may be recharacterized as an equity investment. In this case, William Karl Jenkins (Jenkins) and his wife Earlene Jenkins appeal the bankruptcy court’s determination that funds they advanced should not be considered a loan but should be treated as an equity investment. Although recharacterization is an unusual…