Over the past several years, much has been written about how numerous bankruptcy courts have interpreted and enforced bankruptcy and insolvency-related provisions in intercreditor agreements, subordination agreements and other “agreements among lenders” when they may affect a debtor and its estate. Although the Bankruptcy Code itself provides little guidance, the emerging trend has been for bankruptcy courts to strictly enforce intercreditor agreements according to their clear and unambiguous terms, rather than allow for broader interpretations based upon the parties’ intent or other policy considerations.
Intercreditor agreements are commonplace in loan transactions that involve multiple lenders, and set forth the relative rights, priorities and obligations of senior lenders verses junior or subordinated lenders—including priority of payment—and as to their common borrower and its assets. Section 510(a) of the Bankruptcy Code provides that a subordination agreement is enforceable in a bankruptcy case to the same extent it would be under applicable nonbankruptcy law. But bankruptcy courts have not always enforced these agreements consistently; some courts have enforced them as written, while others have invalidated certain provisions.