Court Provides Senior Creditors With an Additional Mechanism for Obtaining the Right to Vote a Junior Creditor's Claim in a Bankruptcy Reorganization | White & Case LLP International Law Firm, Global Law Practice
Court Provides Senior Creditors With an Additional Mechanism for Obtaining the Right to Vote a Junior Creditor's Claim in a Bankruptcy Reorganization

Court Provides Senior Creditors With an Additional Mechanism for Obtaining the Right to Vote a Junior Creditor's Claim in a Bankruptcy Reorganization

A senior creditor can obtain significant leverage over a chapter 11 debtor if it is able to vote not only its claim but the claims of junior creditors in connection with the solicitation of a plan of reorganization. Obtaining such leverage, however, has proven problematic in the past. Among other things, courts have been reluctant to enforce pre-bankruptcy assignments or waivers of voting rights contained in intercreditor agreements, holding that such assignments or waivers may violate the Bankruptcy Code and rules. In Avondale Gateway Center Entitlement, LLC v. National Bank of Arizona, Case No. CV 10-1772, 2011 WL 1376997 (D. Ariz. Apr. 12, 2011), the United States District Court of the District of Arizona (the "District Court") brushed those concerns aside and held that voting rights are freely transferable under the doctrine of subrogation. This decision, if adopted by other courts, may provide senior creditors with a fully enforceable mechanism for obtaining voting rights from junior creditors.

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