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The distinction between debt and equity often is crucially important. Yet some doubt that there is a distinction of kind, or that the distinction is certain. My objective is to illuminate the conventional view of the difference - the imparity between fixed and contingent participation - and address the main challenges it has encountered. I first describe the common law and statutory developments that crystallized the distinction. I then review the entangled criticisms: that debt and equity are junctionally equivalent or that the difference between them is fatally uncertain. Finally, I briefly consider the utility of the distinction in specific contexts.
La distinction entre les notions de titre de créance et titre de participation revêt souvent une importance cruciale. Toutefois, certains doutent de l'importance de cette distinction ou, même, de son existence. L'auteur présente l'analyse traditionnelle de la distinction entre les deux notions ainsi que les caractéristiques distinguant les titres de participation fixe des titres de participation éventuelle. Il décrit d'abord l'évolution de la common law puis l'évolution législative qui ont cristallisé cette distinction. Il passe en revue les deux écoles de pensée qui mettent en doute cette approche traditionnelle, l'une soutenant que les notions de créance et de participation s'équivalent d'un point de vue fonctionnel, l'autre, que la différence entre ces deux notions est fatalement incertaine. Enfin, il examine brièvement l'utilité de la distinction dans des contextes particuliers.
1. THE CONVENTIONAL DISTINCTION
The rudimentary distinction between debt and equity is apparent. l Classic or prototypical equity investment involves contributing "permanent" capital that is at risk of loss in exchange for rights to participate in the control and residual gain of an undertaking.2 Classic debt, in contrast, is term capital that is advanced for a fixed return without rights to participate in the control of the undertaking. The elemental difference between these prototypes is that only the equity investment is linked contingently to the performance risk of the venture once past the floor risk of viability. Three main forms of risk participation are involved. First, those who advance equity assume the risk that their capital will appreciate or be wholly or partially lost as a result of the quality of performance. Those who advance debt retain the right to recover their original principal...