The Risk Of Equitable Subordination, Post-Enron

Law360, New York (November 24, 2008, 12:00 AM EST) -- In November of 2005, the distressed debt industry was shaken by a decision rendered by Bankruptcy Judge Arthur J. Gonzalez in the Enron proceeding. In re Enron, Case No. 01-1034, 2005 WL 3832053 (Bankr. S.D.N.Y. 2005) (hereafter “Enron I”).

Judge Gonzalez held that a claim purchased by an innocent transferee could still be subjected to equitable subordination based on the conduct of the transferor. Id. at *1.

The Enron I decision affirmed that (i) distressed debt purchasers did not acquire claims free and clear of any...
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