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77 account of any such claims. These claims will be subordinated to all claims or interests that are senior to or equal the claim or interest represented by such security. 11 U.S.C. § 510(b). However, if the security giving rise to the claim is common stock, the subordinated claim will have the same priority as common stock. Id. Subordination under this provision is mandatory rather than discretionary. The purpose of Section 510(b) is to prevent interest holders from raising their seniority level in the Bankruptcy Code priority scheme by effectively converting their equity interests into claims. The doctrine of equitable subordination is found in Section 510(c)(1) of the Bankruptcy Code and encompasses the case law developed by courts under the Bankruptcy Act. This subsection provides for the subordination of all or part of an allowed claim to all or part of another allowed claim (or all or part of an allowed equity interest to all or part of another allowed equity interest) based upon "principles of equitable subordination." 11 U.S.C. § 510(c)(1). The term "principles of equitable subordination" is not defined in the Bankruptcy Code, but has been developed by courts as a three-pronged test requiring that: (i) the claimant must have committed fraud or other inequitable conduct; (ii) the claimant's conduct must have resulted in harm to other creditors or in an unfair advantage to the claimant; and (iii) the subordination of the claim will not be contrary to the principles of bankruptcy law. See In re Mobile Steel Co., 563 F.2d 692, 700 (5th Cir. 1977); Schubert v. Lucent Techs. (In re Winstar Commc'ns, Inc.), 554 F.3d 382 (3d Cir. 2009). If the requirements of equitable subordination are not met, bankruptcy courts may nevertheless use their equitable powers under Section 105 to "recharacterize" a debt claim as equity.

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