Part I United States, 5 Lehman Brothers and Equitable Subordination in Cross-Border Proceedings

The collapse of Lehman Brothers in 2008 had consequences that spread across the world. In the aftermath, Lehman affiliates from outside the United States were forced to commence their own localized insolvency proceedings. The issues multiplied even further, as even within a single country, multiple wholly-owned affiliates were forced to fill their own cases. This chapter addresses a single narrow aspect of these intercompany issues raised in the context of the Lehman cases, when viewed from the perspective of an entity subject to reorganization under chapter 11 in the United States. Specifically, this chapter asks and seeks to answer: to what extent can a US debtor seek to equitably subordinate a claim asserted by an entity that is itself subject to a separate reorganization proceeding? That may depend on whether the entity potentially subject to equitable subordination is a debtor in a foreign jurisdiction pursuant to a foreign insolvency statute.