Enforceability in Bankruptcy of Voting Rights Provisions in Subordination Agreements

Corporate restructuring team leader James Millar authored an article for the New York Law Journal that reviews the current state of the law regarding the enforceability of a provision in a subordination agreement that allows the senior creditor to vote the claim of the junior creditor in a Chapter 11 case. He highlights how such voting provisions are controversial and bankruptcy courts are split on the enforceability of private agreements that allow the senior creditor to vote the subordinated creditor’s claim.

Millar explains that the enforceability analysis begins with §510(a) of the Bankruptcy Code, which states that “[a] subordination agreement is enforceable in a case under this title to the same extent that such agreement is enforceable under applicable nonbankruptcy law.” He then outlines how some courts hold that the §510 enforceability analysis must be limited to the subordination provisions of the agreement—the ranking of the debt—and not the transfer of voting rights.

The full article is available for New York Law Journal subscribers.