In a case of first impression, the United States Court of Appeals for the Third Circuit recently ruled in In re Telegroup, Inc.[1]� that shareholder claims subject to the mandatory subordination provisions of the Bankruptcy Code include claims based upon the post-issuance conduct of the issuing corporation. By doing so, the Third Circuit allies itself with other courts that broadly construe Bankruptcy Code �510(b) and reaffirms the important policy considerations underpinning that section, which are intended to prevent shareholders from bootstrapping their equity interests into unsecured debt claims that would carry greater recovery value.
Bankruptcy Code �510(b)
