January 04, 2016
On December 14, 2015, the United States Court of Appeals for the Second Circuit held that claims arising from securities of a debtor’s affiliate must be subordinated to all claims or interests senior or equal to claims of the same type as the underlying securities in the bankruptcy proceeding. As a result, appellants’ claims for contribution and reimbursement for losses incurred in the course of defending and settling securities fraud lawsuits brought by investors in securities issued by Lehman Brothers Inc.’s (“LBI”) affiliate were subordinated to the claims of LBI’s general unsecured creditors pursuant to Section 510(b) of the Bankruptcy Code. This decision, which the Court of Appeals based on precedent, textual support and legislative history, provides clarity with respect to the appropriate classification of claims in the affiliate securities context.
View full memo, United States Court of Appeals for the Second Circuit Holds That Claims Arising from Securities of a Debtor’s Affiliate Must Be Subordinated to Senior or Equal Claims of the Same Type as the Underlying Securities