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Disallowance and Subordination of Transferred Claims

By Dion W. Hayes and Aaron G. McCollough

Bankruptcy claims traders are currently on the lookout for a decision from the Enron bankruptcy court that could add significant uncertainty to distressed debt markets. The court has under advisement the issue of whether claims sold post-petition are subject to disallowance under ' 502(d) or equitable subordination as a result of pre-petition conduct or receipt of avoidable transfers by the transferor.

In an adversary proceeding filed in its Chapter 11 case, Enron has asserted preference, fraudulent transfer, and equitable subordination claims against its prepetition lenders. Enron also seeks to disallow the banks' claims under ' 502(d). Moreover, Enron seeks to disallow and subordinate claims held by the lenders as of the petition date but subsequently sold to speculative claims buyers.

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