  |
  |
  |
    
  
   |
 | |||
|
|
|
|
| |||
Some recent decisions under section 510 include:
In re Automotive Professionals, Inc., 2008 WL 5075331 (Bk. N.D. Ill. 2008 (Bk. N.D. Ill. 2008 (unclean hands not a defense to claims for equitable subordination since this concept only applies to the wrongful acts of the creditor whose claim is to be subordinated and harm to innocent creditors).
In re First NLC Financial Services, LLC, 396 B.R. 562 (Bk. S.D. Fla. 2008) (debtor sought recharacterization debt as equity; creditor argued state law governed under Travelers and recharacterization was not justified; held, Travelers did not invalidate claims for recharacterization finding support in sections of the Code which permit the Court to examine the substance of transactions).
In re Kreisler, 2008 WL 4613880 (7th Cir. 2008) (creditors not harmed by transaction in which corporation formed by debtors bought a junior mortgagee's secured claim; court acknowledged there was a "certain underhanded quality" to the conduct but said that the rules permit claims trading and creditors were not harmed).
In re SI Restructuring, Inc., 2008 WL 2469406 (5th Cir. 2008) (claims of insiders on loan to alleviate cash crunch and meet payroll not subordinated to other secured creditors even though insider offered the financing at the eleventh hour in a "no-choice" situation; to subordinate requires a showing of harm and subordination is only warranted to offset the harm; here, there was no harm and the fact that other loans were secured was irrelevant since the loans were paid off). See also In re Repository Technologies, Inc., 381 B.R. 852
(N.D. Ill. 2008) (no subordination of claim of insider who used personal funds to acquire loan at face value, and delivered a default notice on the day he resigned as a director; here, no harm to creditors and insider took steps a non-insider could not have taken).
In re Winstar Communications, Inc., 554 F.3d 382 (3d Cir. 2009) (supplier/lender subordinated for inequitable conduct including forcing quarter-end purchases to inflate earnings, and delaying refinancing notice to induce other creditors to invest; no subordination to equity).
The following cases are of interest on discharge and dischargeability issues:
A sales and service agreement between a seller of farm equipment and the creditor, an agricultural equipment manufacturer, gave rise to an express trust with respect to sale proceeds. Here; the agreement used the word "trust" and the parties intended that the seller would take possession and segregate the proceeds, and hold them on behalf of the creditor. These provisions gave rise to a fiduciary obligation and debt was nondischargeable as one for fraud and defalcation in a fiduciary capacity. In re Strack, 524 F. 3d 493 (4th Cir 2008).
©2009 Jonathan M. Landers
