Multiple Claims, and Substantive Consolidation

Abstract

The Supreme Court's 1935 Ivanhoe decision created the specter of undue multiplication of claims, particularly in bankruptcies that involve large business enterprises conducted through many separate legal entities. Ivanhoe should be overruled on its own facts, but even if it is not, its extension to other situations is indefensible. Until overruled, Ivanhoe is properly limited to creditors secured by nondebtor collateral, foreclosure of which does not give rise to reimbursement or subrogation claims against the bankruptcy estate. While even in that case Ivanhoe overcompensates the creditor, such cases are rare and do not entail large-scale multiplication of claims against bankruptcy estates. If Ivanhoe is so limited, co-debtor liability among insolvent estates can be dealt with through a form of marshaling described in this Article. Otherwise, the practical second-best solution to the multiple claims problem is likely to remain liberal reliance on the substantive consolidation doctrine.