What is the test for equitable subordination of a creditor's claim in a bankruptcy proceeding?

MultiRegion, United States of America

The following excerpt is from Lightsquared LP v. SP Special Opportunities LLC (In re Lightsquared Inc.), 511 B.R. 253 (Bankr. S.D.N.Y. 2014):

subordination of claims based on common law concepts of the equitable doctrine, and stating that the bankruptcy court has the [equitable] power to sift the circumstances surrounding any claim to see that injustice or unfairness is not done in administration of the bankrupt estate) (quoting Pepper v. Litton, 308 U.S. at 305, 60 S.Ct. 238) (grammatical changes in original). Accordingly, creditor misconduct in connection with the chapter 11 process itselfirrespective of applicable non-bankruptcy lawprovides an appropriate predicate for equitable subordination of such creditor's claim.

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