''Taylor v. Standard Gas and Electric Company'', 306 U.S. 307 (1939), was an important

United States Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...

case in

United States corporate law United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governance ...

that laid down the "Deep Rock doctrine" as a rule of

bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...

and corporate law. This holds that claims, as creditors, upon an insolvent subsidiary company by controlling shareholders or other insiders, like managers or directors, will be subordinated to the claims of all other creditors.

Facts

The Deep Rock Oil Corporation was an undercapitalized subsidiary of the

defendant In court proceedings, a defendant is a person or object who is the party either accused of committing a crime in criminal prosecution or against whom some type of civil relief is being sought in a civil case. Terminology varies from one jurisdic ...

Standard Gas Company.

Judgment

The Supreme Court held that, where a subsidiary

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...

declares bankruptcy and an insider or controlling shareholder of that subsidiary corporation asserts claims as a

creditor A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...

against the subsidiary, loans made by the insider to the subsidiary corporation may be deemed to receive the same treatment as shares of stock owned by the insider. Therefore, the insider's claims will be subordinated to the claims of all other creditors, i.e. other creditors will be paid first, and if there is nothing left after other creditors are paid then the insider gets nothing. This also applies (and indeed the doctrine was first established) where a

parent company A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...

asserts such claims against its own

subsidiary A subsidiary, subsidiary company or daughter company is a company owned or controlled by another company, which is called the parent company or holding company. Two or more subsidiaries that either belong to the same parent company or having a s ...

. The doctrine will be applied where

equity Equity may refer to: Finance, accounting and ownership * Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the dif ...

requires, particularly where the subsidiary was undercapitalized at the time that it was established, and can thereby be shown to have been mismanaged for the parent corporation's benefit.

External links

* United States bankruptcy case law United States corporate case law United States securities case law United States Supreme Court cases United States Supreme Court cases of the Hughes Court 1939 in United States case law {{SCOTUS-stub

Facts

Judgment

See also

External links