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Abstract: 

Subordination agreements that establish lien rights and priorities with respect to collateral of a common borrower are often first tested in the borrower’s bankruptcy. Because the Bankruptcy Code affords substantial protections to secured creditors, a lien subordination agreement should carefully address how a junior lienor’s rights are to be circumscribed during the case to prevent prejudice to the priority rights of the first lienor. Thus, in drafting lien subordination agreements, parties should focus upon how the relative rights and remedies of the first and second lienors are to be dealt with in bankruptcy.

Keywords: intercreditor disputes; subordination agreement; lien priority; lien subordination; debtor-in-possession financing; sale of collateral

Affiliations:  1: Parker, Hudson, Rainer & Dobbs LLP.