NY Ch. 7 Ruling Continues Cash Advance Recharacterization

Manatt Bankruptcy Partner authored a Law360 article that examines a significant decision from the U.S. Bankruptcy Court for the Southern District of New York, which reinforces a growing trend: courts are increasingly recharacterizing merchant cash advance agreements as loans rather than true sales of receivables.

In Togut v. eProdigy Financial LLC (In re: Kossoff PLLC), the court looked beyond contract labels and focused on the economic realities of the transaction, applying a three-factor test that has become central to these disputes. The ruling underscores that substance, not form, controls when determining whether a financing arrangement is a sale of assets or a disguised loan.

Carroll traces the evolution of this legal framework through key New York and bankruptcy court decisions, highlighting the implications for funders, borrowers and bankruptcy trustees. The article offers important insights into how courts are evaluating risk allocation, reconciliation provisions, repayment terms and bankruptcy protections in merchant cash advance agreements.

Read the full Law360 article .