Enforceability in Bankruptcy of Voting Rights Provisions in Subordination Agreements
Bankruptcy courts continue to disagree about whether a provision in a subordination agreement that purports to allow the senior creditor to vote the subordinated creditor's claim is enforceable.
September 16, 2022 at 02:40 PM
8 minute read
BankruptcySubordination agreements among creditors have an obvious purpose—to consensually reorder payment priorities among two or more creditors. For example, Creditor A and Creditor B could enter into a subordination agreement providing that, if the borrower lacks the money to pay them both in full, Creditor A gets paid 100% of its debt before Creditor B receives anything. In return for agreeing to subordinate its debt, Creditor B will typically receive some form of consideration, such as a higher interest rate from the company that issued the debt.
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