A Leg Up for Equity?


Equity security holders or investors (“Equity Holders”) in debtor entities are usually subordinated to creditors’ claims in bankruptcy cases. This need not always be the case.

Two conditions exist where Equity Holders’ claims may be equal or superior to general unsecured creditors’ claims. The first are claims based on “fraudulent retention” (“Fraudulent Retention Claims”). The second are claims based on debtors’ post-petition interfering with Equity Holder’s rights to sell their investment, to benefit the debtors’ reorganization effort (“Freeze Claims”).

Read Part I - Fraudulent Retention Claims: Here.

Read Part II - Freeze Claims: Here.