Rules of Thumb for Intercreditor Agreements

14 Pages Posted: 30 Sep 2016

Date Written: February 28, 2015


Intercreditor agreements frequently restrict the extent to which subordinated creditors can participate in the bankruptcy process by, for example, contesting liens of senior lenders, objecting to a cash collateral motion, or even exercising the right to vote on a plan of reorganization. Because intercreditor agreements can reorder the bargaining environment in bankruptcy, some judges have been unsure about their enforceability. Other judges have not hesitated to enforce the agreements, at least when they do not restrict the voting rights of subordinated creditors. This essay argues that intercreditor agreements are controversial because they pose a trade-off: they reduce bargaining costs (by limiting the participatory rights of subordinated creditors), but can give senior lenders outsized influence over the bankruptcy process, to the detriment of investors who were not party to the intercreditor agreement. The essay proposes several rules of thumb that might help judges navigate this trade-off.

Keywords: bankruptcy, credit agreements, intercreditor agreements, Chapter 11

JEL Classification: K20, K22, G32, G33

Suggested Citation

Morrison, Edward R., Rules of Thumb for Intercreditor Agreements (February 28, 2015). University of Illinois Law Review, Vol. 2015, No. 2, 2015, Available at SSRN: or

Edward R. Morrison (Contact Author)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States

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