equitable subordination

equitable subordination
equitable subordination n: the subordination of a creditor's claim in a bankruptcy proceeding imposed by the court when the creditor has an unfair advantage over other creditors because of improper conduct or an advantageous position (as of a corporate insider)

Merriam-Webster’s Dictionary of Law. . 1996.

equitable subordination
A doctrine allowing bankruptcy courts to lower the priority of a claim and delay its payment until other creditors are paid. This requires showing that the creditor holding such claim is guilty of inequitable or wrongful conduct, such as fraud, illegality, breach of fiduciary duties, undercapitalization or that the creditor exercised an unreasonable level of control over the debtor and its business.
For further information, see Practice Note, Lenders Beware: The Risk of Equitable Subordination in Bankruptcy (www.practicallaw.com/4-386-2555).

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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