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Opinion 593

Case Name: 

Bird v. SKR Credit, Ltd. (In re Digital Bridge Holdings, Inc.)

Judge: 
Judge Mosier
Date: 
Sep-30-2015
Case Number(s): 
12-02373
Status: 

UNPUBLISHED

Body: 

Corporate debtor borrowed money from three lenders pre-petition. The promissory notes provided that the debtor would file UCC financing statements to perfect the lenders’ security interests. The debtor filed the statements incorrectly, leaving the lenders’ interests unperfected. Subsequently the debtor borrowed money from a fourth lender, which properly perfected its security interest. After an involuntary chapter 11 petition was filed against the debtor, the case was later converted to chapter 7, where the trustee sought equitable subordination of the fourth lender’s lien under § 510(c). The trustee argued that equitable subordination was proper because the fourth lender had injured the three other lenders. The Court held that § 510(c) only subordinates claims, not liens. In addition, the Court held that the trustee lacked standing to assert equitable subordination claims on behalf of individual creditors. Ordinarily, a trustee can bring a general equitable subordination claim on behalf of the estate as a whole. Lastly, the Court held that § 510(c) was inapplicable by its own terms because the trustee was not proposing to make a distribution to general unsecured creditors.

Internal Ref: 
Opinion 593