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March 2018

Treatment of claims in insolvency proceedings - Debt vs. Equity

If monies are advanced to a company by its shareholders, is such advance debt or equity? This can be an important question in insolvency matters. If the monies are debt and secured by a registered security agreement, then the shareholder will be entitled to payment ahead of the ordinary, unsecured creditors of the company. On the other hand, if the monies are equity, then the shareholder's right to repayment of them will be postponed behind the rights of all of the company's creditors, both secured and unsecured.

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