Subordination of non-arm’s length creditors’ claims: at a crossroads

Abstract

In several European countries and the US, corporate and insolvency law principles allow the courts to subordinate the claims of non-arm’s length creditors (i.e., affiliates, shareholders, controlling persons, officers, etc.) of an insolvent entity. However, there is no universal approach across the above jurisdictions. Instead, the scholars observe a whole range of subordination regimes. Each of them derives from a unique and unsteady balance between the interests and values protected by law. This paper examines the Russian subordination rules and their evolution and discusses the values and incentives behind the subordination of non-arm’s length creditors claims in search for an optimal approach.