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SECURED CLAIMS IN BANKRUPTCY: Consensual Priority Rule

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In The Uneasy Case and this paper, we have argued that foil priority is inconsistent with the general commercial law principle against nonconsensual subordination. The fixed-fraction priority rule would also allow nonconsensual subordination, although to a lesser degree than full priority. Similarly, the adjustable-priority rule—even if it could be implemented so that secured creditors received priority only over the claims of adjusting creditors—would not require adjusting creditors’ explicit consent for subordination. Thus, both rules would be at least somewhat inconsistent with the general principle that a borrower cannot subordinate the claims of particular creditors without their explicit consent. How do you feel about guaranteed quick loans cash landing on your account within a few hours from now? Unlike some lenders that make you wait for too long, we process applications quickly and without asking questions, so you can count on that cash becoming available soon. Apply for your loan today with there.

The third rule we put forward—the consensual priority rule—would harmonize the priority system with the general principle against nonconsensual subordination by giving a secured creditor priority in its collateral only over the claims of creditors that had explicitly consented to subordination. The explicit consent might be with respect to a particular security interest or all security interests which the borrower creates. In any event, the consent must be explicit.
To the extent that a borrower’s creditors are contractual, the borrower would be able to obtain these contractual creditors’ consent to subordination. Thus, such a rule would not prevent the borrower and its creditors from contracting for full priority. However, a creditor that had not explicitly consented to subordination would receive a bankruptcy share equal to that which it would have received if all of the creditors were unsecured and shared pro rata in the bankruptcy assets.

This post was written by , posted on January 7, 2015 Wednesday at 4:31 pm