Issue link: https://mbozikis.ufcontent.com/i/1422521
76 In Section 510(a), the Bankruptcy Code recognizes consensual subordination agreements and provides that a "subordination agreement is enforceable . . . to the same extent that such agreement is enforceable under applicable nonbankruptcy law." 11 U.S.C. § 510(a). For example, one or more creditors (the "Subordinated Creditors") may agree to subordinate their right to payment of their claims to the claims of one or more other creditors (the "Senior Creditors") in the event of bankruptcy through an intercreditor agreement or a subordination provision in one or both of the agreements at issue. 37 In the event of a bankruptcy, and absent different plan treatment or compromise, the claims of the Subordinated Creditors would be entitled to a pro rata distribution vis-à-vis the other creditors in that class, but their actual distributions would be paid over to the Senior Creditors to the extent provided in the relevant agreements. In addition to the subordination of payments as described above, intercreditor agreements also typically provide for the relinquishment of various rights by the Subordinated Creditors to the Senior Creditors. In particular, intercreditor agreements will often include the waiver by the Subordinated Creditors of certain bankruptcy rights (such as voting on a plan of reorganization) in favor of the Senior Creditors. Notwithstanding Section 510(a), however, some courts have refused to enforce some of these provisions. See, e.g., In re 203 N. LaSalle St. P'ship, 246 B.R. 325 (Bankr. N.D. Ill. 2000); In re Hart Ski Mfg. Co., 5 B.R. 734 (Bankr. D. Minn. 1980); but see In re Coastal Broad. Sys., Inc., 2012 WL 2803745 (Bankr. D.N.J. July 6, 2012). Section 510(b) of the Bankruptcy Code provides for the subordination of claims for (i) rescission of a purchase or sale of a security of the debtor or of an affiliate of the debtor, (ii) damages arising from the purchase or sale of such security, or (iii) reimbursement or contribution allowed under Section 502 on 37 In order for such payment subordination to cover the payment of postpetition interest to the Senior Creditors, the applicable agreement must explicitly so state. See, e.g., First Fid. Bank, Nat'l Ass'n v. Midlantic Nat'l Bank (In re Ionosphere Clubs, Inc.), 134 B.R. 528 (Bankr. S.D.N.Y. 1991).