The collective action doctrine runs afoul of New York law (as embodied in the parties’ contracts) and good policy when it interprets majority governance in a manner that overrides the terms of basic loan entitlements promised to individual lenders.
Syndicated loan agreements, in reality, combine principles of majority rule and individual rights. The entitlements traditionally reserved as the exclusive domain of individual lenders, namely, the right to obtain repayment of principal at maturity, the right to receive payment of interest at the agreed rate and at agreed intervals, and the right to bar releases of all or substantially all loan collateral and guarantees,1 legally cannot and should not be denied by means of “collective action” doctrine.
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