The subordination of the calims of shareholders, including a parent corporation , in favor of those of outside creditors is also known as the "deep rock doctrine." In a bankrupcy or receivership, creditors invoke the theory, asking the court to order sharehodler in their capacity as creditors to "go to the end of the line." At teh end of the line, sharehodler receive little or no payment for advacnes or other debts. The creditros thus benefit because they share with fewer persons, resulting in larger recovery.
Subordiation is not limited to formal debt incurred at incorporation or capitalization. In Pepper v. litton , Justice Douglas noted the pwoer of bankruptcy courts, "essentially courts of equity." "to sift the circumstances of any lcaim to see that injustice or unfairness is not done in administartion of the bankruptcy estate." The court upheld the trial court's subordination of salary claims by Litton.