“Safe” Investors Found to Hold Claims, Not Equity Interests (American Bankruptcy Institute)

In their recent American Bankruptcy Institute article, Goodwin partners Kizzy L. Jarashow and Barry Z. Bazian and associate James Lathrop explain that, on an issue of first impression, the bankruptcy court in Rhodium Encore found that holders of a simple agreement for future equity (SAFE) held claims, rather than equity interests, providing such holders recoveries ahead of common stockholders, under the bankruptcy priority scheme. The court’s decision was driven by two features of the SAFEs in Rhodium: (1) Upon certain events, the SAFE-holders were entitled to receive back the amount that they had initially paid for the SAFEs; and (2) the SAFE-holders’ right to receive the payment had a liquidation priority junior to outstanding indebtedness and creditor claims but senior to common stock. Notably, various equity-like features of the Rhodium SAFEs, such as the absence of a fixed maturity date and regular interest payments and the holders’ entitlement to dividends, did not weigh heavily in the court’s decision.

Read the full analysis: “‘Safe’ Investors Found to Hold Claims, Not Equity Interests” (American Bankruptcy Institute)