In re Envirodyne Industries
United States Court of Appeals for the Seventh Circuit
79 F.3d 579 (1996)
- Written by Heather Whittemore, JD
Facts
In 1989 Envirodyne Industries (the former Envirodyne) merged with Emerald Acquisition Corporation to form a new Envirodyne Industries (new Envirodyne) (plaintiff). Shareholders had a right to redeem their shares for $40 per share or to dissent from the merger and exercise their appraisal rights. After the merger, the former Envirodyne’s stock was canceled, and the remaining shareholders who failed to redeem their shares (the nontendering shareholders) (defendants) became creditors of new Envirodyne. In 1993 new Envirodyne filed for Chapter 11 bankruptcy. New Envirodyne owed over $2 million to the nontendering shareholders. New Envirodyne filed an adversary action in bankruptcy court, seeking to equitably subordinate the claims of the nontendering shareholders to the claims of other unsecured creditors, as allowed by 11 U.S.C. § 510(c). The bankruptcy court granted the equitable subordination, and the district court affirmed. The nontendering shareholders appealed, arguing that equitable subordination was improper because the bankruptcy court did not find that the nontendering shareholders had engaged in any wrongful behavior.
Rule of Law
Issue
Holding and Reasoning (Cummings, J.)
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