What Kan. Bankruptcy Ruling Means For Junior Lenders

Finance and restructuring partner Laura Appleby and associate Elizabeth Little coauthored an article for Law360 titled “What Kan. Bankruptcy Ruling Means For Junior Lenders.” The article discusses the implications of a recent court case that found that, while a subordinated creditor may not delegate rights provided to it in the U.S. Bankruptcy Code to a senior creditor, a subordinated creditor may also be so far out of the money that it lacks the right to participate in the bankruptcy plan process at all.

Appleby and Little highlight that senior lenders should be aware that bankruptcy voting provisions contained in subordination agreements may not be enforceable if challenged in a bankruptcy court. On the other hand, the authors note that subordinated creditors should be aware that, depending on the financial position of the borrower, a bankruptcy court could find that a subordinated creditor is not permitted to participate in the bankruptcy plan process if the subordination agreement renders that creditor so far out of the money that it has no hope for a direct financial recovery.

The full article is available for Law360 subscribers.