Limits For An Equitable Subordination Claim

Law360, New York (November 20, 2008, 12:00 AM EST) -- Section 510(c) of the Bankruptcy Code codified case law under the Bankruptcy Act of 1898 to specifically provide that "principles of equitable subordination" may be used to "subordinate for purposes of distribution" all or part of one claim/equity interest to all or part of another claim/equity interest.

The statute provides no explicit criteria for equitable subordination. The doctrine was developed through case law, and continues to be refined through new cases.

A general synthesis of the cases leads to the following guiding principles:

(a) The bankruptcy...
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