What is equitable subordination?

Equitable subordination is a legal concept in Oregon’s creditors rights law that allows a judge to change the order of payment between two creditors. This means that one creditor can be given a higher priority of repayment than another creditor, even if the original terms of the debt established the two creditors as having the same priority level. For example, let’s say that a company has two creditors. Creditor A originally loaned the company $50,000 and is to be repaid first, followed by Creditor B, who was loaned $100,000. However, Creditor B can file a motion with the court to have its debt be given a higher priority of payment than Creditor A. If the judge grants the motion, then Creditor B’s debt will be paid first and Creditor A’s debt will be paid after. Equitable subordination is used in Oregon creditors rights law to ensure that creditors are treated fairly in the case of bankruptcy or insolvency. It is important to note that not all creditors are eligible for equitable subordination. Generally, the court will only grant such a motion if they find that the creditor applying for equitable subordination has been treated unfairly or prejudicially due to the actions of the debtor.

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What is equitable subordination?

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