Equitable Subordination In Canada – Waiting For The Right Facts

What does the U.S. doctrine of equitable subordination have to do with Canada? Superficially, the answer may be: not much. But for many financing and insolvency professionals here in Canada, there remains a palpable sense that the U.S. doctrine will eventually, if not inevitably, find its way fully across the U.S. border into Canada. So, perhaps the more appropriate response really ought to be: not much, at least not yet! It is because of this anticipation that it is worthwhile, from time to time, to summarize the central aspects of the U.S. doctrine and to determine its current level of acceptance here in Canada.

The U.S. Doctrine in Brief

Under the U.S. Bankruptcy Code, U.S. courts may apply equitable principles to remedy creditor misbehaviour, including by subordinating certain creditor claims — both secured and unsecured — to the claims of lower-ranking creditors. But, because the remedy disregards the otherwise freely negotiated arrangements of transacting