The Future Of Derivative And Direct Creditor Claims

Law360, New York (August 21, 2007, 12:00 AM EDT) -- On July 9, 2007, the United States Court of Appeals for the Second Circuit issued a decision in In re Applied Theory Corp., holding that the unsecured creditors’ committee could not equitably subordinate the claims of Applied Theory’s secured lenders under Section 510(c) of the Bankruptcy Code.[1]

The Second Circuit’s main holding—that derivative claims can be brought by creditors’ committees only under limited circumstances that were not present in the Applied Theory case—is not surprising because it is based on established Second Circuit precedent.

However, the...
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