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Second Circuit Affirms Dismissal of Creditors' Committee Equitable Subordination Complaint

August 20, 2007

The U.S. Court of Appeals for the Second Circuit, on July 9, 2007, decisively affirmed a bankruptcy court's dismissal of an equitable subordination complaint filed by a creditors' committee against eight investment fund lenders. Official Committee of Unsecured Creditors of Applied Theory Corporation v. Halifax Fund, L.P., et al. (In re Applied Theory Corporation), ­­­___ F.3d ___, 2007 U.S. App. LEXIS 16180 (2d Cir. July 9, 2007). In its strong opinion, the court summarily rejected the committee's arguments that equitable subordination claims "may be brought directly by a creditor, creditors, or a creditors' committee, without Bankruptcy Court Approval." Id., at 4.