Subordination

SUBORDINATION OF CLAIMS– § 510(b)

In re USA Commercial Mortg. Co., 377 B.R. 608 (9th Cir. BAP 2007)

Shareholders who filed proof of interest and proof of claim for fraud and breach of contract

from the sale of the stock should not have had their claims disallowed. Claims may have been

subject to subordination under § 510(b), but not without an adversary proceeding being filed under

Bankruptcy Rule 7001(8).

In re American Wagering, Inc., 493 F.3d 1067 (9th Cir. 2007)

Claim for money damages for failure to deliver stock promised as compensation, brought

well in advance of debtors’ filing for bankruptcy, was a debt not subject to subordination under

510(b).

In re Betacom of Phoenix, Inc., 240 F.3d 823 (9th Cir. 2001)

1) “Section 510(b)’s legislative history does not reveal an intent to tie mandatory

subordination exclusively to securities fraud claims;” 2) Nothing in § 510(b) limits the application

of the statute to those who are in actual possession of the security; 3) An actual purchase or sale of

a security is not required to subordinate the claim.

”