HHR Bankruptcy Report

Category Archives: Claims Subordination

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Unresolved Questions Remain in Recharacterizing Insider Debt

Posted in Claims Subordination, Debt Recharacterization, SCOTUS
On August 10, 2017, the Supreme Court dismissed the writ of certiorari in PEM Entities LLC v. Levin as improvidently granted. See No. 16-492, 2017 WL 3429146, at *1 (U.S. Aug. 10, 2017).  This decision leaves the circuit courts split on the issue of whether to use federal or state law in recharacterizing insider debt… Continue Reading

Bankruptcy Court Decision Illustrates Limits of Section 510(b) Subordination of Claims

Posted in Claims Subordination, Section 510(b)
A recent decision in the Bankruptcy Court for the District of Delaware explored the limits of mandatory subordination under section 510(b) of the Bankruptcy Code. In In re FAH Liquidating Corp., No. 13-13087(KG), 2017 WL 95115 (Bankr. D. Del. Jan. 10, 2017), Judge Kevin Gross ruled that membership units in special purpose vehicles that held… Continue Reading

The Fourth Circuit Weighs In on Recharacterization of Debt as Equity

Posted in Claims Subordination, Fourth Circuit
The Bankruptcy Code contains specific provisions that permit the subordination or disallowance of claims of insiders or others that may not, at equity, be entitled to the same status as a regular prepetition claim holder. For example, such claims may be equitably subordinated under section 510(c) or disallowed under certain subsections of section 502. In… Continue Reading

Recent Seventh Circuit Ruling Clarifies “Inquiry Notice” Doctrine

Posted in Bankruptcy Claims, Claims Subordination, Seventh Circuit
Bank of New York Mellon lost priority status for its claim of $312 million in the liquidation of Sentinel Management Group when the 7th Circuit held that it should have suspected Sentinel was misusing customer assets and conducted an investigation into the source of the collateral Sentinel had posted.  The 7th Circuit clarified the doctrine… Continue Reading

Second Circuit Provides Guidance on Subordination of Claims Under Section 510(b)

Posted in Claims Subordination, Second Circuit, Section 510(b)
In a recent opinion providing guidance to bankruptcy courts on a developing issue of law, the Second Circuit affirmed a decision of the District Court for the Southern District of New York subordinating contribution claims pursuant to section 510(b) of the Bankruptcy Code because they arose from the purchase or sale of a security of… Continue Reading

In Recent Ruling, SCOTUS Preserves Junior-Lien Lenders’ Secured Claims

Posted in Bankruptcy Claims, Chapter 11, Claims Subordination, SCOTUS
On June 1, 2015, the U.S. Supreme Court issued its decision in Bank of America v. Caulkett.[1] The Court’s unanimous opinion, which was written by Justice Thomas, established that junior mortgage lienholders maintain a “secured” claim against a bankrupt debtor even where the junior mortgage lien is completely underwater. Further, an underwater junior mortgage lien… Continue Reading

Bankruptcy Court in SDNY Decides Question of Section 510(b) Subordination of Claims Arising from Securities of an Affiliate of the Debtor

Posted in Claims Subordination, Section 510(b)
Mandatory subordination pursuant to section 510(b) of the Bankruptcy Code is commonly applied where claims arise from the purchase or sale of securities that were issued by the debtor.  Less common is the situation where a debtor seeks subordination of claims that arise from a transaction involving securities of an affiliate of the debtor.  This… Continue Reading