The South Bay Law Firm Law Blog highlights developing trends in bankruptcy law and practice. Our aim is to provide general commentary on this evolving practice specialty.
 





 
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • March 2014
  • September 2013
  • July 2013
  • June 2013
  • February 2012
  • January 2012
  • December 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • September 2009
  • August 2009
  • July 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • February 2009
  • January 2009
  • December 2008
  • November 2008
  •  
      RSS
    Comments RSS
    Log in
       
      Insolvency News and Analysis - Week Ending October 17, 2014
    Insolvency News and Analysis - Week Ending October 10, 2014
    What's In A Name?
    Insolvency News and Analysis - Week Ending September 26, 2014
       

    Intercreditor Agreements: How Far Can They Reach?

    Creditor's Ledger, Holmes McDougall

    Image by edinburghcityofprint via Flickr

    Can a senior secured lender require, through an inter-creditor agreement, that a junior lender relinquish the junior’s rights under the Bankruptcy Code vis á vis a common debtor?

    Though the practice is a common one, the answer to this question is not clear-cut.  Bankruptcy Courts addressing this issue have come down on both sides, some holding “yea,” and others “nay.”  Late last year, the Massachusetts Bankruptcy Court sided with the “nays” in In re SW Boston Hotel Venture, LLC, 460 B.R. 38 (Bankr. D. Mass. 2011).

    The decision (available here) acknowledges and cites case law on either side of the issue.  It further highlights the reality that lenders employing the protective practice of an inter-creditor agreement as a “hedge” against the debtor’s potential future bankruptcy may not be as well-protected as they might otherwise believe.

    In light of this uncertainty, do lenders have other means of protection?  One suggested (but, as yet, untested) method is to take the senior lender’s bankruptcy-related protections out of the agreement, and provide instead that in the event of the debtor’s filing, the junior’s claim will be automatically assigned to the senior creditor, re-vesting in the junior creditor once the senior’s claim has been paid in full.

    Enhanced by Zemanta

    Tags: , , , ,

    Leave a Reply