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In a March 2021 decision in the jointly administered bankruptcy
cases of Fencepost Productions, Inc. and certain of its affiliates,
Judge Dale L. Somers of the Bankruptcy Court for the District of
Kansas declined to enforce a voting restriction in subordination
agreements between two of the debtors creditors, but
nonetheless found that the deeply subordinated creditors were
barred from voting on the debtors plan because they lacked
prudential standing.
1 In declining to enforce the
contractual voting restriction, the decision defies a trend toward
enforcing subordination and intercreditor agreement terms - so long
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To Vote or Not to Vote: Court Holds That “Out of Money” Junior Creditor Barred from Objecting to Plan Friday, April 23, 2021
On March 31, 2021, the U.S. Bankruptcy Court for the District of Kansas held in
In re Fencepost Productions Inc. that even though an assignment of voting rights provision in a subordination agreement was not enforceable in a bankruptcy proceeding, a subordinated creditor nevertheless was barred from participating in proceedings related to a chapter 11 plan and disclosure statement on the basis that the subordinated creditor lacked prudential standing.
1 On the one hand, the decision calls into question the enforceability in bankruptcy proceedings of voting assignment provisions agreed upon in prepetition contractual agreements, and, on the other, affirms the enforceability of prepetition contractual provisions that may alter the priorities set forth in the Bankruptcy Code. If followed by other courts, the decision raises
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