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There are signs of equitable subordination in the UK: Mac-Jordan Construction v Brookmount Erostin [1992] BCLC 350.

Might there be another answer provided by statute? S 544(a) of the Bankruptcy Code, USC Title 11 provides that:

(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by -

(1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists;

(2) a creditor that extends credit to the debtor at the time of the commencement of the case, and obtains, at such time and with respect to such credit, an execution against the debtor that is returned unsatisfied at such time, whether or not such a creditor exists; or

(3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.

Hans

-----Original Message-----

From: Lionel Smith
Sent: Tuesday, May 14, 2002 12:06 AM
To: ENRICHMENT@LISTS.MCGILL.CA
Subject: Re: [RDG:] Proprietary Restitution and Insolvency

The US federal courts claim a jurisdiction in bankruptcy which they call "equitable subordination." It is a kind of reverse constructive trust: a jurisdiction to lower somebody's priority in the bankruptcy rather than to raise it, when the court thinks there is some abuse of the principles of insolvency.

As to whether this is transplantable to other jurisdictions, there is an excellent and comprehensive recent study of whether it might travel to Canada: Thomas G.W. Telfer, "Transplanting equitable subordination: the new free-wheeling equitable discretion in Canadian insolvency law?" (2001) 36 Can. Bus. L.J. 36-88.

Stout traditionalists will of course dismiss this as rubbish. It is the usual dispute as to how quickly the law can be developed by judges vs. what properly belongs to the legislature.