The Subordination Of Equity-­Related Claims In Bankruptcy

Law360, New York (February 8, 2017, 4:46 PM EST) -- Michael Friedman

Leo V. Gagion Lenders and investors in companies often have assumed, based upon Section 510(b) of the Bankruptcy Code and decades of court decisions, that claims related to the purchase and sale of securities, such as breach of contract, fraud, misrepresentation or other securities law violations, are subordinated to the level of the underlying security in question and therefore subordinated to all unsecured and secured claims against the bankrupt company. The logic for this is that one should not be able to elevate an underlying equity interest by "bootstrapping" such interest to a breach of contract, fraud or misrepresentation...

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