Equitable Subordination of ESOP Stock Redemption Reversed
Citing United States Supreme Court precedent, a federal appeals court has held that bankruptcy courts may not, as a rule, automatically subordinate stock redemption claims that arise from employee retirement plans.
The ruling means that in the First Circuit, stock redemptions from plans qualified under the Employee Retirement Income Security Act of 1974 (ERISA) may not be equitably subordinated unless a court makes a specific finding that such subordination is justified in an individual case.
The dispute in Merrimac Paper Company, Inc. v. Harrison (In re Merrimac Paper Co., Inc.), 420 F.3d 53 (1st Cir. 2005) arose following the retirement of Ralph Harrison, who worked for Merrimac from 1963 to 1999. Harrison participated in an ERISA-qualified employee stock ownership plan (ESOP), which Merrimac adopted in 1985....
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