Secured Credit and Effective Entity Priority

39 Pages Posted: 16 Aug 2018

See all articles by Christopher W. Frost

Christopher W. Frost

University of Kentucky - College of Law

Date Written: July 31, 2018

Abstract

The historical and doctrinal development of secured transactions and bankruptcy law has created a priority system that is asset based. Secured creditor priority is tied to the value of specific assets that constitute the secured creditor’s collateral and not to the value of the debtor itself. And yet, in corporate bankruptcy cases, lenders and their attorneys often assert broad claims to the entire enterprise value of the entity – that is to the present value of the cash flows that the entity will generate as a going concern. The doctrinal basis for such claims is often unstated, however, and several commentators have criticized the breadth of those claims under existing law. This article answers those commentators and provides an argument that secured creditors can establish a broad enough security interest to create an “effective entity priority.”

Keywords: bankruptcy, secured credit, reorganization, Chapter 11, Article 9, secured transactions, priority, finance, corporate, credit

Suggested Citation

Frost, Christopher W., Secured Credit and Effective Entity Priority (July 31, 2018). Connecticut Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3225212

Christopher W. Frost (Contact Author)

University of Kentucky - College of Law ( email )

620 S. Limestone Street
Lexington, KY 40506-0048
United States

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