Creditor Equality, Secured Transactions, and Systemic Risk: A Complex Trilemma
CREDITOR EQUALITY, SECURED TRANSACTIONS, AND SYSTEMIC RISK: A COMPLEX TRILEMMA
RODRIGO OLIVARES-CAMINAL 0 1
0 Copyright © 2018 by Rodrigo Olivares-Caminal. This article is also available at
1 Professor in Banking and Finance Law, Centre for Commercial Law Studies, Queen Mary University of London
these restructurings, certain unsecured creditors received even better treatment
than secured creditors. Second, this article analyzes the new regime for
Systemically Important Financial Institutions (SIFIs) in the context of bank
insolvencies, where the characterization of these institutions as systemically
important allows for a differential treatment of otherwise equally ranked
creditors. These analyses highlight an ad hoc transformation of the principle of
equality and the traditional role of secured transactions that, in turn, undermine
long established principles of commercial law.
Because collateral remedies and preferences are most relevant in the context
of a debtor’s insolvency, the discussion begins by analyzing the principle of
equality from the insolvency4 perspective. In this context, it addresses the equal
ranking, equal treatment and pro-rata principles.
PRINCIPLES OF EQUALITY IN INSOLVENCY LAW
As a baseline proposition, creditors rank equally in a debtor’s insolvency.
This is a result of the pari passu (or equal ranking) principle, which is often said
to constitute a fundamental rule of corporate insolvency law.5 Two related
propositions supplement and complement this principle. These are the par
condicio creditorum, or equal treatment of creditors, and the pro-rata or ratable
payment. Under the former proposition, certain actions taken by the debtor in
the lead-up to insolvency can be nullified if they favor some creditors over others.
Under the latter proposition, the net proceeds of the debtor’s assets are to be
distributed to meet creditor claims on a proportional basis.6
Secured transactions historically have been a fundamental exception to the
pari passu principle; a secured creditor has priority access to the assets pledged
as collateral.7 For example, when a bank creates a security interest, it is entitled
in a default situation to satisfy its claim from the proceeds of collateral, ahead of
other remaining creditors. Additionally, secured lenders might sometimes lend
at lower rates, facilitating the flow of credit. In some circumstances, collateral
importantly enables a firm to borrow when it needs liquidity and unsecured
borrowing is not feasible.
4. For purposes of this article, the terms “insolvency” and “bankruptcy” are used interchangeably.
5. VANESSA FINCH, CORPORATE INSOLVENCY LAW: PERSPECTIVES AND PRINCIPLES 599 (2d ed.
6. See Wilson v. City Bank, 84 U.S. 473, 484 (1873) (“[T]he grant feature of [the Bankrupt Act] is
to secure equality of distribution among creditors in all cases of insolvency . . . .”).
7. Security can be personal or real. Personal security refers to the creation of a personal obligation
that can be enforced against the person of the debtor but against no other. The most important type of
personal security is the common guarantee (a contractual obligation for which only the guarantor is
responsible). The concept of real security goes beyond the scope of contractual obligations. The creation
of real security such as a charge, mortgage, or pledge grants property rights over an asset for the purpose
of securing the performance of a debt obligation. For an enlargement on economic and legal aspects
related to the use of security, see Lucian Bebchuck & Jesse Fried, The Uneasy Case for the Priority of
Secured Claims in Bankruptcy, 105 YALE L.J. 857 (1996); Jay L. Westbrook, The Control of Wealth in
Bankruptcy, 82 TEX. L. REV. 795 (2004).
Secured transactions result from the legal system allowing a bilateral
contractual convention reflecting a pre-established policy interest to alter the
equal ranking of creditors. The rationale for allowing this bilateral agreement to
undermine the equal right of other parties lies in the ulterior motive of facilitating
liquidity, which will most likely result in economic growth.8
EXCEPTIONS TO THE EQUAL RANKING AND EQUAL TREATMENT OF
CREDITORS’ PRINCIPLES AND IMPLICATIONS FOR SECURED TRANSACTIONS
As a result of the global financial crisis and credit crunch, there have been a
series of regulatory and judicial developments that have challenged the equality
of creditors in insolvency and altered the rights of secured and unsecured
creditors. The violation of the equality of creditors in the Chrysler LLC and
General Motors Corporation (hereafter referred to as Chrysler and GM,
respectively) bankruptcies and the preference granted to unsecured creditors
over some secured creditors, as well as the exceptions for SIFIs in the context of
bank insolvencies, have prompted the re-thinking of the current status quo in
cases of systemic risk, particularly focusing on secured transactions. These new
approaches are analyzed below.
A. The Breach of the Equal Ranking and Equal Treatment of Creditors in the
Chrysler and GM Bankruptcies and Its Impact on Secured Transactions
In the midst of the global financial crisis, U.S. courts have varied the equal
ranking and the equal treatment principles and even prioritized some unsecured
creditors over secured creditors, as illustrated by the Chrysler and GM
The global financial crisis put serious pressure on Chrysler and GM, which
were going through a recessive period. At the beginning of 2009, both companies
were “bleeding to death”9 and needed external assistance. Fearing an
unmanageable collapse of the automotive industry, the U.S. and Canadian
governments granted financial assistance to both car manufacturers. The funds
were mainly provided by the Troubled Asset Relief Program, TARP.10 This
financial assistance played a key role in these unprecedented bankruptcy
reorganizations, which might—from an economic point of view—arguably be
called “two of the biggest success stories of the Obama administration.”11
8. This general exception to the equality principle is not the only one. There are two more: (1) legal
priorities or preferences, which results from legislative policy interests; and (2) subordination, which
results from contractual freedom.
9. Douglas G. Baird, Lessons from the Automobile Reorganizations, 4 J. LEGAL ANALYSIS 271,
10. Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343, 122 Stat. 3765 (2008).
11. Ralph Brubaker & Charles Tabb, Bankruptcy Reorganizations and the Troubling Legacy of
Chrysler and GM, 5 U. ILL. L. REV. 1375, 1377 (2010).
LAW AND CONTEMPORARY PROBLEMS [Vol. 81:87
Chrysler and GM took advantage of the insolvency practice of reorganizing
businesses via a § 363 sale. This practice refers to § 363(b) of the U.S. Bankruptcy
Code, which allows a sale of assets outside of the ordinary course of business.
This provision was originally intended to address the urgent and
nonbureaucratic sale of assets like vegetables, fruits, or other products with a short
durability, which rapidly decrease in value. It also became used to sell significant
parts of, or entire, businesses as a going concern instead of reorganizing and/or
selling them in a normal Chapter 11 proceeding.12
In Chapter 11 proceedings, creditors are able to vote on a proposed plan and
therefore have the opportunity to pursue their interests. In a § 363 sale, it is
mainly up to the court to sanction the sale and consider the interests of all
affected parties. Brubaker and Tabb refer to this as a “shift from ‘direct
democracy’ to ‘representative democracy.’”13
One of the landmark rulings giving guidance to the courts on how to exercise
their responsibility arising from this “representative democracy” is Lionel,14
which established a detailed test. Detailed findings and requirements as well as
further specifications of this test have already been analyzed elsewhere.15 The
main advantage of § 363 sales is that they usually can be performed quickly and
are less expensive and less complex than a Chapter 11 reorganization plan.16 The
urgency rationale (remember the fruits mentioned above) allows expedited
restructuring transactions. Hugely complex restructurings such as Chrysler and
GM were able to be finalized in forty-one and thirty-nine days, respectively.17 In
the GM bankruptcy, the U.S. Bankruptcy Court for the Southern District of New
York illustrated this point by stating that courts “have the power to authorize
sales of assets at a time when there still is value to preserve—to prevent the death
of the patient on the operating table.”18 The economic and political implications
arising from systemic risk concerns are a possible explanation as to why § 363
sales are being used to allow these complex restructurings.19
These sales have been highly criticized by commentators—before and after
the Chrysler and GM reorganizations—fearing that they undermine main
principles of the U.S. Bankruptcy Code. Thus, some commentators provocatively
declare that § 363 sales will lead to “bankrupting bankruptcy” law.20 This article
analyzes whether such sales can affect the principles of equal ranking and equal
treatment as well as the implications that this has on secured transactions. This
brings us to the so-called “sub rosa sales,” a variation of § 363 sales.
2. Potential for Circumventing Chapter 11 Protections Through Sub Rosa §
The Latin phrase sub rosa refers to something done, or happening, in secret.
Therefore, if a § 363 sale is done in a secretive manner to allegedly deceive
creditors it is referred to as a § 363 sub rosa sale. The first case dealing with the
sub rosa variant of business reorganizations was Braniff.21 The court held that a
proposed § 363 sale was a de facto reorganization plan and therefore
impermissible, stating the following:
The debtor and the Bankruptcy Court should not be able to short circuit the
requirements of Chapter 11 for confirmation of a reorganization plan by establishing
the terms of the plan sub rosa in connection with a sale of assets . . . [w]ere this
transaction approved, and considering the properties proposed to be transferred, little
would remain save fixed based equipment and little prospect or occasion for further
reorganization. These considerations reinforce our view that this is in fact a
The relevant question is “if the sale itself seeks to allocate or dictate the
distribution of sale proceeds among different classes of creditors.”23 When the
sale aims to bypass “baseline protections with respect to the distribution of the
value of the estate amongst the debtor’s creditors and owners,”24 then the court
should not sanction a § 363 sale.
The detailed requirements for a Chapter 11 confirmation can mainly be found
in §§ 1121–1129 of the U.S. Bankruptcy Code.25 Relevant for this article, are the
following principles which aim to provide the same protection as the earlier
defined equal ranking and equal treatment principles: (1) equal treatment of
similarly situated creditors (§ 1123(a)(4)); and, (2) cramdown protection (§
1129(b)(2)) which includes the “fair and equitable” and the “not discriminate
unfairly” or “unfair discrimination” rules.
3. Absolute Priority as the Ratio of Equal Treatment, Unfair Discrimination
and Fair and Equitable Rules
The equal treatment, unfair discrimination and fair and equitable rules
mainly derive from the concept of absolute priority, which is based on
centuryold cases in the area of equity receivership reorganizations.26 Since these cases,
Circumventing Chapter 11 Protections Through Manipulation of the Business Justification Standard in §
363 Asset Sales . . . .”).
21. In re Braniff Airways, Inc., 700 F.2d 935 (5th Cir. 1983).
22. Id. at 940.
23. In re Gen. Motors Corp., 407 B.R. at 495.
24. Brubaker & Tabb, supra note 11, at 1390.
25. A more detailed examination of those requirements can be found in OLIVARES-CAMINAL ET
AL., supra note 15, at 196–200.
26. See OLIVARES-CAMINAL ET AL., supra note 15, at 171.
LAW AND CONTEMPORARY PROBLEMS
which dealt with the restructuring of railroad companies, it has been made clear
that these principles as well as the absolute priority rule derive from the right of
property in its purest sense.27 The principles of equal treatment of similarly
situated creditors and unfair discrimination mainly mirror the equal treatment
principle analyzed earlier.
The fair and equitable principle is the core of the absolute priority rule28 and
has been clearly codified. Section § 1129(b)(2)(B)(ii) of the U.S. Bankruptcy
Code states that when a class is not satisfied in full and therefore impaired, “the
holder of any claim or interest that is junior to the claims of such class will not
receive or retain under the plan on account of such junior claim or interest any
property . . . .” In short, as long as an impaired class does not receive full payment
(that is 100%), junior classes must not receive anything. This applies in the
relationship between secured and unsecured creditors, within classes of
unsecured creditors and also between unsecured creditors and shareholders.29
Courts tend to interpret this principle in a strict way.30 As such, the absolute
priority rule and the fair and equitable principle especially address the ranking of
creditors—manifested in the principle of equal ranking—in underlining that the
ranking and thereby classification of creditors necessarily means that senior
creditors trump junior creditors—also known as the waterfall principle in
In certain circumstances, old shareholders can stay or find their way back in
the reorganized company by contributing new value.31 There is still uncertainty
about whether this principle should be fully accepted. Recently, courts have been
reluctant in applying it and have required a strict market test.32
The following parts analyze the interaction between these rules and § 363
sales in the context of the Chrysler and GM bankruptcy reorganizations,
27. See N. Pac. Ry. Co. v. Boyd, 228 U.S. 482 (1913) (explaining: “[I]n either event it was a right of
property out of which the creditors were entitled to be paid before the stockholders could retain it for
any purpose whatever.”). See also Case v. L.A. Lumber Prod. Co., 308 U.S. 106 (1939) (applying this
principle outside of a railroad company).
28. Courts even label the words “fair and equitable” as a rule of full or absolute priority. See L.A.
Lumber Prod. Co., 308 U.S. at 117.
29. See OLIVARES-CAMINAL ET AL., supra note 15, at 172–73. Section §1129(b)(2) provides
detailed regulations for all scenarios in §§ (A)–(C).
30. See, e.g., In re Armstrong World Indus., 432 F.3d 507, 513 (3d Cir. 2005) (holding “[T]he plain
language of the statute makes it clear that a plan cannot give property to junior claimants over the
objection of a more senior class if that class is impaired.”).
31. See OLIVARES-CAMINAL ET AL., supra note 15, at 173–76 for comprehensive reference to case
32. According to this test, efforts by junior interests to add new value into a debtor entity under a
plan of reorganization must be exposed to market competition in order to ensure that “top dollar” is
received. For example, see In re Cypresswood Land Partners, I, 409 B.R. 396, 438–439 (Bankr. S.D. Tex.
2009). See OLIVARES-CAMINAL ET AL., supra note 15, at 174–75 for further analysis.
B. The Chrysler Bankruptcy Reorganization
1. The Proceedings
Due to its systemic implication and dimension, the Chrysler bankruptcy
resulted in a highly complex transaction. A detailed analysis of its background
and the implementation of the process can be found elsewhere.33 Analysis for the
purpose of this article will focus on specific aspects and therefore deliberately
exclude some details of the transaction. Figure 1 below34 (“Chrysler Sale”) aims
to summarize the main structure of the transaction (the position of creditors
which are particularly of interest are underlined):
Chrysler required $9.2 billion in external funding, which the U.S. and
Canadian governments provided.35 These funds were mainly secured by
thirdlien collateral on all of Chrysler’s assets. A condition for this financial support
was the preparation of a viability plan. Despite having multiple options, the Auto
Task Force, appointed by President Obama, concluded that an alliance with Fiat
was Chrysler’s most advantageous alternative.36 On April 30, 2009, Chrysler and
its subsidiaries filed for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code.37 Ten days later, Chrysler sold its business to a Fiat affiliate, a
NewCo (“New Chrysler”), as a going concern via a § 363 sale.38
LAW AND CONTEMPORARY PROBLEMS [Vol. 81:87
Upon filing, Chrysler had several secured and unsecured liabilities. A
syndicate of lenders held a senior secured claim of around $6.9 billion,
collateralized mainly by all of Chrysler’s assets.39 Chrysler also owed
approximately $2 billion in second-lien secured debt to affiliates of the former
shareholders.40 Besides that, they owed approximately $10 billion to a trust
established to provide healthcare benefits to retirees of the International Union,
United Automobile, Aerospace and Agricultural Implement Workers of
America (UAW).41 Chrysler owed a further $5.34 billion to various trade
The restructuring transaction had the following main effects:43
• Chrysler effectively transferred all of its assets to a newly established
entity, “New Chrysler.”
• In return, New Chrysler paid a cash consideration of $2 billion to Old
• New Chrysler assumed specific liabilities, including part of those owed
to the UAW trust ($4.6 billion) and certain trade liabilities.
• The U.S. Treasury (8%), Canada (2%), Fiat (35%) and the UAW
Trust (55%) become the shareholders of New Chrysler.44
• The assumption of the UAW liabilities and the allocation of shares to
the UAW Trust was part of a deal negotiated between New Chrysler
and UAW to keep the workforce motivated and thereby ensure the
continuation of the business.45
• After the sanction of the sale, the consideration of $2 billion was
distributed to the first-priority secured lenders within the Chapter 11
2. The Criticism
The Chrysler sale was met with various criticisms in and out of court.47 Mainly
relevant for this article is the criticism addressing the relation between (1) the
senior secured creditors (Syndicate of Lenders with a claim of $6.9 billion)
receiving the consideration of $2 billion as highlighted in bold in Figure 1 above
39. Id. at 89.
40. Id. The “old shareholders” were Cerberus Capital Management L.P. and its affiliates (80%) and
Daimler AG and its affiliates (20%).
41. Id. at 89–90.
42. Id. at 90.
43. For more details regarding the transaction see Warburton, supra note 33, at 534–37.
44. In re Chrysler LLC, 405 B.R. at 92.
45. See Warburton, supra note 33, at 536–37 (noting that “such an agreement was obtainable, in
part, because the UAW wanted to ensure continued employment for its active employees as well as
continued funding of the UAW Trust.”).
46. In re Chrysler LLC, 405 B.R. at 92, 97.
47. Within the judicial proceeding, the court had to deal with many arguments stating that the sale
was impermissible because it was a sub rosa sale, there was a strong governmental influence, etc. The
arguments were extensively analysed in Brubaker & Tabb, supra note 11, at 1391–99. Further criticisms
and an academic debate were broadly analysed in Warburton, supra note 33, at 547–72.
and (2) the UAW Trust receiving better treatment than other senior secured
creditors (also highlighted in bold in Figure 1 above).
Three Indiana state pension funds—members of the Syndicate of Lenders—
objected to the § 363 sale arguing that the sale was a sub rosa sale, as unsecured
creditors (the UAW Trust) received value while secured creditors (the Syndicate
of Lenders) only received twenty-nine cents on the dollar.48 Thus, the main
question is if via the sale, funds were improperly distributed from “retired
Indiana policemen” to “retired Michigan autoworkers.”49
The U.S. Bankruptcy Court for the Southern District of New York dealt with
this argument stating that “there is no attempt to allocate the sale proceeds away
from the First-Lien Lenders. Rather, the security interest of the First-Lien
Lenders will attach to the sale proceeds and there will be an immediate and
indefeasible distribution of all of the $2 billion dollar cash sale price to the
FirstLien Lenders, who are owed $6.9 billion.”50 The court observed that a purchaser
may decide to assume certain contracts and liabilities which “reflects the
purchaser’s business judgment, the effect of which does not constitute a sub rosa
plan because the obligation is negotiated directly with the counterparty. Thus,
any of the obligations under those agreements are satisfied by New Chrysler and
do not constitute a distribution of proceeds from the Debtor’s estates.”51 Finally,
the court held that this also applies for the “ownership interests in the new entity,
which was neither a diversion of value from the Debtor’s assets nor an allocation
of the proceeds from the sale of the Debtor’s assets. The allocation of ownership
interests in the new enterprise is irrelevant to the estates’ economic interests.”52
The Second Circuit disagreed with the position of the Indiana pension funds,
stating that all proceeds would be distributed entirely to the first-priority secured
creditors and “[n]ot one penny of value of the Debtor’s assets is going to anyone
other than the First-Lien Lenders.”53 Thus, according to the courts the
transaction was concluded as consistent with bankruptcy priority rules and did
not constitute a sub rosa plan.54 On appeal, the U.S. Supreme Court vacated the
Second Circuit’s decision, remanding it with instructions to dismiss the appeal as
Another weakness in the arguments put forth by the Indiana state pension
funds was that the Syndicate of Lenders had already consented to the § 363 sale.
Section 363(f) provides that assets may only be sold “free and clear of any interest
in such property” if (amongst others) the holder of an interest (for example the
holder of a collateral/lien) consents to the sale (§ 363(f)(2)). The Syndicate of
48. See Warburton, supra note 33, at 543–44.
49. Id. at 563.
50. In re Chrysler LLC, 405 B.R. at 98.
51. Id. at 99 n.18.
52. Id. at 99.
53. In re Chrysler LLC, 576 F.3d 108, 118 (2d Cir. 2009), vacated as moot, 558 U.S. 1087 (2009).
54. Id. at 118 n.9.
55. Indiana State Police Pension Tr. v. Chrysler LLC, 558 U.S. 1087 (2009). Discussed in detail in
Warburton, supra note 33, at 575–78.
LAW AND CONTEMPORARY PROBLEMS [Vol. 81:87
Lenders was represented by a Collateral Trustee, which was directed by an
Administrative Agent. This agent was bound by the decisions of lenders holding
a majority of the Syndicate’s indebtedness. Although the Indiana state pension
funds did not agree to the sale, lenders holding 92.5% of the indebtedness did.56
The Indiana state pension funds challenged the release of the sold assets, arguing
that the agents’ consent was not valid and, furthermore, the consenting lenders
were also recipients of TARP-funds and therefore brought under undue pressure
by the US Government.57 Still, the Bankruptcy Court concluded that the
Administrative Agent’s consent “satisfies the section and allows for the
purchased assets to be sold free and clear”58 and that the argument about the U.S.
Government exerting pressure would be “without any evidentiary support” and
“mere speculation and without merit.”59 The Second Circuit affirmed the position
of the Bankruptcy Court on both aspects.60
Cases like this conflate two concerns: whether the § 363 sale is a sub rosa
reorganization, and whether that sale can facilitate the distortion of creditor—
especially secured creditor—priorities. Commentators agree that cases like
Chrysler can be suspected to be sub rosa sales, and especially when the
transaction includes the assumption of liabilities—such as the liabilities towards
the UAW Trust or trade creditors—the potential of priority distortion
increases.61 Additionally, U.S. courts are aware of such a risk caused by the
assumption of liabilities. The courts’ argument in cases like Chrysler—and also
GM, explained below—is that “the disparate treatment of creditors occurs as a
consequence of the sale transaction itself and is not an attempt by the debtor to
circumvent the distribution scheme of the Code.”62 Thus, the question is not if
liabilities get assumed, but if such assumption takes value away from the debtor—
and therefore the other creditors. The latter may openly be the case when instead
of paying a cash consideration, which can be easily distributed following the
distributional principles of the Bankruptcy Code, specific liabilities get assumed
without (or with less) distribution to the rest of the creditors. If the assumption
of liabilities does not affect the consideration but rather is a business judgment
by the purchaser—such as a necessary deal with the UAW Trust—then no value
may be taken away.63
According to most commentators, the Chrysler transaction represented the
latter case and therefore seems “fundamentally sound.”64 Following the U.S.
jurisprudence, this would mean that no basic principles of insolvency law were
circumvented and/or breached. Concessions or gifts given to the UAW Trust by
New Chrysler are therefore referred to as a “cost of doing business.”65 Still, the
amount of assumed liabilities has been described as abnormally high in
comparison to other § 363 sales.66
Finally, Brubaker and Tabb point out that the absolute priority rule of §
1129(b)(1) only protects dissenting classes and, therefore, the objection of the
Indiana state pension funds may also face formal difficulties.67 Given that the
Syndicate of Lenders consented to the release of the sold assets under § 363(f)(2)
with a 92.5% majority, these authors argue that “one can safely presume that this
class of secured claims would vote to accept if the Fiat sale were proposed
through a plan of reorganization.”68 This is an essential aspect because the
consent to an alteration of priorities is one of the main exceptions of existing
C. The GM Bankruptcy Reorganization
1. The Proceedings
The GM situation was similar to Chrysler in terms of the need of
governmental support and the basic structure of the deal. Again, this analysis will
focus on the relevant issues in terms of the principle of equality and therefore
deliberately exclude some aspects of the transaction. Figure 2 below, “GM
Sale,”70 summarizes the main structure of the transaction (the position of
creditors that are primarily relevant for the scope of this article are underlined):
LAW AND CONTEMPORARY PROBLEMS [Vol. 81:87
GM needed governmental support in the total amount of more than $50
billion to be able to continue operating. Unlike Chrysler, there was no alliance
with another car company such as Fiat, but a § 363 sale was still possible due to
the strong commitment of the U.S. and Canadian Governments.71
On June 1, 2009, GM and its subsidiaries filed for bankruptcy protection
under Chapter 11 of the US Bankruptcy Code.72 One month later, GM sold its
business to a NewCo (“New GM”) as a going concern in a § 363 sale.73 Upon
filing, GM had less secured credit (around $5.5 billion owed to a Syndicate of
Lenders)74 than Chrysler; it also had a substantial amount of unsecured debt
($117 billion owed to the UAW Trust, bondholders and others).75
The restructuring transaction had the following main effects:76
• GM effectively transferred all of its assets to a newly established entity
• The U.S. Treasury and Canada assigned their loans to New GM which
then credit bid for the assets of Old GM.77
Old GM received 10% of the common stock issued by New GM and
warranted to purchase an additional 15% that would serve to
distribute value to its unsecured creditors (bondholders, GM dealers,
The senior secured Syndicate of Lenders was repaid in full by New
The U.S. Treasury (60.8%), Canada (11.7%), the UAW Trust
(17.5%) and Old GM (10%) became the shareholders of New GM.80
The allocation of shares to the UAW Trust was part of a deal
negotiated between New GM and UAW to keep the workforce
motivated and ensure the continuation of the business.81
2. The Criticism
Similar to Chrysler, creditors claimed that the preferential treatment of the
UAW Trust constituted a sub rosa plan and allegedly breached basic insolvency
principles. The senior secured creditors had no reason to object given that they
already had been repaid in full and therefore had to release the sold assets
anyway, but unsecured bondholders objected, arguing that the UAW Trust
received “more” than their pari passu share by directly receiving equity interests
in New GM.82 The court disagreed and endorsed UAW Trust’s treatment by
arguing that the transaction “does not rise to the level of establishing a sub rosa
plan. The objectors’ real problem is with the decisions of the Purchaser, not with
the Debtor, nor with any violation of the Code or caselaw.”83 The court thus
continued the jurisprudence that business judgments and gifts on the level of the
purchaser (New GM) as such do not automatically lead to a sub rosa plan as long
as they do not take away value from the debtor.84
Commentators usually describe the Chrysler and the GM sales as involving
the same types of issues.85 Still, Brubaker and Tabb undertook a very different
analysis of the GM sale, calling it a “Trojan horse assault on chapter 11’s
distributional norms.”86 These commentators compare the GM sale with the
equity receiverships discussed above,87 which have led to the absolute priority
rule, as we know it today. In such equitable receiverships, creditors of struggling
businesses were—similar to today’s sales practice—able to purchase the business
78. In re Gen. Motors Corp., 407 B.R. at 482–83.
79. Warburton, supra note 33, at 538.
80. In re Gen. Motors Corp., 407 B.R. at 482–83.
81. See Warburton, supra note 33, at 538 (describing UAW’s collective bargaining agreement with
82. In re Gen. Motors Corp., 407 B.R. at 474, 495.
83. Id. at 496.
84. The court also explicitly refers to the Chrysler decision (see In re Gen. Motors Corp., 407 B.R.
at 497–98). See also supra Part III.B.2.
85. A summary of the arguments at stake can be found in Warburton, supra note 33, at 547–72.
86. Brubaker & Tabb, supra note 11, at 1380.
87. See supra Part III.A.3.
LAW AND CONTEMPORARY PROBLEMS [Vol. 81:87
via a new entity, allocate the shares of this entity amongst each other, and keep
the business running.88 In Boyd,89 the Supreme Court made it clear that creditors
were not free to do whatever they wanted in the process and especially not in the
allocation of shares, but rather had to respect rights of property.90 Brubaker and
Tabb argue that at its core, the GM sale was a similar way of reorganizing the
business by selling it to its creditors.91 Neither commentator questions the general
view of the courts regarding business judgments and gifts in the sphere of the
purchaser. They also appreciate that there can be fair discrimination between
creditors. Their concern lies in the court’s clear statement that “the allocation of
value by the purchaser d[oes] not affect the debtor’s interest.”92 According to
them, this “supposed dichotomy” between the values of the purchaser and the
debtor would be “a manifestly false one”93 and would mean that “anything goes”
and that “[t]here are no limits.”94 Thus, they are not concerned about the mere
fact that the UAW Trust received more than the other unsecured creditors.
Rather, they believe that there was no objective justification or valuation for the
extent of this preferential treatment and that the court was explicitly favoring a
reorganization without the required information to scrutinize the outcome.95 As
explained in the next part, the courts’ decisions pose a real threat to long
established commercial law principles.
D. An Overarching Critical Analysis of the Chrysler and GM Cases
There is no doubt that the Chrysler and GM bankruptcies were unique in
terms of their dimensions, complexity and especially their systemic importance,
the last being evidenced by the provision of governmental support. As a result of
this support, the governmental providers of new financing mainly dictated the
terms of the transactions. While this huge interference was one of the main
criticisms,96 others argued that what happened was not any different from “a
88. See Brubaker & Tabb, supra note 11, at 1399–1406.
89. N. Pac. Ry. Co. v. Boyd, 228 U.S. 482 (1913).
90. In Boyd, the property rights of unsecured creditors were violated because they were squeezed
out of the new entity while the old shareholders received shares in order to retain their expertise in
running the railroad. See Brubaker & Tabb, supra note 11, at 1402.
91. See id. at 1400 (“One could hardly imagine a starker example of a transaction that, regardless of
its nominal form, is a quintessential ‘reorganization.’”).
92. In re Gen. Motors Corp., 407 B.R. 463, 497 (Bankr. S.D.N.Y. 2009) (quoting In re Chrysler LLC,
405 B.R. 84, 99 (Bankr. S.D.N.Y. 2009)).
93. Brubaker & Tabb, supra note 11, at 1402.
94. Id. at 1404.
95. See id. at 1404 (noting that “The point, therefore, is not that there was unjustified ‘unfair
discrimination’ in favor of UAW . . . the point is that . . . the disparate treatment the UAW retiree benefit
claims indisputably received was immunized from any scrutiny whatsoever as to whether its value was
commensurate with the UAW’s contribution to the value of New GM.”).
96. See, e.g., Brubaker & Tabb, supra note 11, at 1405 (noting that this “allowed the government to
dictate all terms of the purchases”) and Baird, supra note 9, at 271 (stating that the government was “a
large creditor exercising control over its debtor and pushing for a speedy sale of the assets”). See also
Roe & Chung, supra note 61, at 402 (arguing: “The implication is that since the government filled the
role of the DIP lender in Chrysler, it got to make the rules, distributional and otherwise.”) and
private creditor trying to maximize its return on a bad investment”97 or from a
dominant DIP-lender.98 Because of the dimension of interests at stake, the
pressure on all parties involved (including the courts) was considerable. This
pressure and the “need for speed”99 led to the fact that both Chrysler and GM
finally “rocketed”100 through the proceedings.
Still relevant is what these cases mean for the principles of equal ranking and
equal treatments. One might wonder if U.S. courts “have established a de facto
priority for unpaid, unfunded pension plans?’101
The court’s reasoning in these cases was that business judgments and gifts in
the sphere of the purchaser do not necessarily lead to violations of main
principles regarding ranking and treatment of creditors. This is valid as long as
the decisions of the purchaser do not take away value from the debtor’s estate or
violate or alter the rights of creditors in other ways. If that is the case, it can
indeed be argued that they “do not affect the debtor’s interest.”102 However,
these decisions are problematic when “used to corrupt the reorganization
Thus, arguments indeed suggest that in Chrysler, there was no violation of the
principles at stake because the whole consideration of $2 billion went to the
senior secured creditors of Old Chrysler. Even if New Chrysler would have
assumed more liabilities, allocated the shares differently or taken other business
judgments, the distribution of the $2 billion to the senior secured creditors would
not have changed. Still, it must be stated that this line is very thin because one
can always argue that such business judgment may indirectly affect the amount
of the cash consideration.104 Furthermore, one might ask why the vast majority of
the senior secured creditors consented to the release of their lien on the sold
assets under § 363(f)(2). Given that there is no evidence that the U.S.
Government put the majority of these lenders under pressure, as argued by the
Indiana state pension funds, senior secured creditors might simply have not seen
any better alternative. As Judge Gonzalez noted, they had “numerous options
under the Bankruptcy Code: they could have refused to consent to the sale or,
having consented, they could have chosen to credit bid instead of agreeing to take
cash.”105 In this regard, Brubaker and Tabb may be right in assuming that the
Warburton, supra note 33, at 531
(“The federal government’s investment in the American automotive
industry in 2008 and 2009 has sparked controversy over the government’s role in private enterprise, in
general, and the bankruptcy process, in particular.”)
97. Baird, supra note 9, at 280.
98. See Roe & Chung, supra note 61, at 401 (“Those with the gold make the rules.”).
99. In re Gen. Motors Corp., 407 B.R. 463, 484 (Bankr. S.D.N.Y. 2009).
100. Brubaker & Tabb, supra note 11, at 1377.
101. As asked in Roe & Chung, supra note 61, at 428.
102. In re Gen. Motors Corp., 407 B.R. at 497.
103. Baird, supra note 9, at 292.
104. Thus, the distinction between the two scenarios developed by Brubaker & Tabb (see supra note
11, at 1396) might often be difficult to make.
105. In re Chrysler LLC, 405 B.R. 84, 98 (Bankr. S.D.N.Y. 2009).
LAW AND CONTEMPORARY PROBLEMS [Vol. 81:87
senior secured creditors would have also consented to a corresponding Chapter
11 plan of reorganization and thereby waived their right to reject the plan because
of a breach against the absolute priority rule.106
There might also be reasons to sympathize with the skepticism of Brubaker
and Tabb regarding the GM sale. Here, the business judgments of New GM and
especially the allocation of shares arguably affected the debtor’s estate (Old GM)
as it received a part of the common shares of New GM—and warrants to acquire
more. In both the Chrysler and GM cases, the court held that a purchaser is free
to allocate ownership interests. The allocation of ownership interests can lead to
an unequal treatment of the unsecured creditors of Old GM, who share the
distributions out of the equity interests in New GM. Potentially, this could lead
to violations of priority rules because exceptions to these rules should only be
possible within strict limits. It is not clear that there was such a violation in the
GM case, and the court did not investigate further to find out.
In summary, there was no court order that the equal ranking and the equal
treatment principles were breached in the Chrysler and GM bankruptcy
reorganizations. However, both cases presented potential for such breach. Even
Buffett said that there will be “a whole lot of consequences” if priorities are
ignored and “that’s going to disrupt lending practices in the future.”107 In both
reorganizations, the courts strictly followed precedents on § 363 sales and gifts of
purchasers. Thus, the courts relied on precedent from less significant cases to
sanction § 363 sales for these complex restructurings with systemic economic and
political impact. Systemic risk was not used as a legal justification to create an
exception of secured transactions and the equal ranking and treatment principles.
Taking into account the initial purpose of § 363 sales—preserving value of
perishable goods such as fruits—extending its application to reorganizations such
as GM and Chrysler should be eyed very critically. If the real justification for
overriding the rights of secured creditors and giving a different treatment to
creditors is systemic risk, then the test must be whether systemic risk justifies such
results. This is a concern that needs to be addressed by commercial law generally
to preserve parties’ expectations while at the same time bearing in mind systemic
implications. Sometimes the fear of systemic risk is overstated and the remedies
end up distorting parties’ rights and the rule of law.
A parallel can be drawn to the bankruptcy law concept of “safe harbor” for
derivatives transactions, where derivatives counterparties have special rights and
immunities in the bankruptcy process—including virtually unlimited
enforcement rights against the debtor. Although this safe harbor was ostensibly
justified by its ability to reduce systemic risk, it has never been proven that the
106. See Confirmation of Plan, 11 U.S.C. §1129(b)(1) (providing that the court shall confirm the plan
if the plan is fair and equitable with respect to each class of claims or interests that is impaired under, and
has not accepted, the plan).
107. Jennifer Dauble, CNBC Transcript: CNBC’s Becky Quick Sits Down with Billionaire Investor
Warren Buffett Today on CNBC’s “Squawk Box”, CNBC (May 11, 2009), https://www.cnbc.com/
risk is actually reduced. Some have concluded that this safe harbor is not
necessary and probably even amplifies systemic risk.108 It is important to
remember that the bankruptcy of companies is a natural way to address
inefficiencies and cleanse market participants that are not in a position to
continue operating; it is the essence of the free market. No bankruptcy regulation
gives rise to market distortion. Section 363 sales may well be needed to quickly
restructure a collapsing systemically important firm but careful consideration
should be given to the real nature of the transaction: whether the main aim is the
rescue of the firm or circumventing the reorganization process at the expense of
undermining long established pillars of commercial law.
Finally, exceptions to the fundamental principles at stake should always meet
high thresholds—for example, the concept of contribution of new value described
above.109 Additionally, the statements of the courts in Chrysler and GM should
be looked at in a critical way because the demarcation line is very thin—even if
they do not constitute an actual breach, in practice they might amount to a breach
to the equality principle and the order of priorities. The advancement of
unsecured creditors over secured ones cannot be overlooked as it undermines
one of the essential elements of commercial law. This approach was initially
justified because it avoided adding to the instability in the financial market. But
the economic crisis during which the GM and Chrysler bailouts occurred was an
exceptional time. While exceptional circumstances require exceptional measures,
now that the crisis has abated, courts have a duty to recast the use of § 363 sales
and align them with their original purpose.
THE VIOLATION OF THE EQUAL RANKING AND EQUAL TREATMENT OF
CREDITORS IN THE FINANCIAL SECTOR
The bail-in tool is one of the main responses in the aftermath of the global
financial crisis to ensure that systemically important institutions can be aided
without jeopardizing financial stability. It is designed to impose losses to
shareholders and creditors of the failing institution by means of statutory debt
write-down and conversion powers invested in the resolution authorities.
Conceptually, bail-in is exactly the opposite of bail-out, because shareholders and
creditors will bear the losses. However, from a general perspective, despite the
fact that the new system is based on a transition to using bail-in to replace
bailout, there could be exceptional cases where it is not appropriate to make use of
The resolution tools used to deal with distressed financial institutions—
including bail-in—are meant to avoid the creation of financial instability and
LAW AND CONTEMPORARY PROBLEMS
systemic risk. However, by writing liabilities down, the insolvency problems of
the failing bank are likely to be transmitted as losses to its creditors, which can
be other systemically important financial institutions. Therefore, an excessive use
of the bail-in tool can generate exactly the same consequences that the resolution
procedure is supposed to avoid, namely contagion, financial instability and
systemic risk as a result of imposing losses to other entities which are being
bailed-in. The problem when implementing bail-in is that it can be very difficult
in practice to separate the relationships among financial institutions. The same
institutions that fail can be investors or creditors of other institutions and
viceversa. This can make it very difficult and expensive for banks to find appropriate
forms of financing.
In November 2015, the Financial Stability Board published a document that
acknowledged the problem of contagion by applying bail-in,110 and suggested that
“[a]uthorities should place appropriate prudential restrictions on G-SIBs’ and
other internationally active banks’ holdings of instruments issued by
GSIBs . . . .” The rationale of such a principle is “[t]o reduce the potential for a
GSIB resolution to spread contagion into the global banking system.”111
B. The BRRD Exceptions to the Use of Bail-in
At the EU level, article 44 paragraph 3 of the Bank Recovery and Resolution
Directive (BRRD), in alignment with Recitals 72 and 83 of the same Directive,
states that “[i]n exceptional circumstances, where the bail-in tool is applied, the
resolution authority may exclude or partially exclude certain liabilities from the
application of the write-down or conversion powers.”112
In delegated regulation, the EU Commission stated that in making the
decision on whether or not to exempt liabilities from the application of bail-in, if
the use of the tool may create direct contagion,113 the resolution authorities have
to “assess, to the maximum extent possible, the interconnectedness of the
institution under resolution with its counterparties.”114 If the use of the tool can
generate indirect contagion,115 they have to “assess, to the maximum extent
possible, the need and proportionality of the exclusion based on multiple
CREDITOR EQUALITY, SECURED TRANSACTIONS, AND SYSTEMIC RISK
objective relevant indicators.”116
1. The Rationale
In all these cases, which represent exceptions to the general principle that
creditors can be bailed-in, the rationale is to avoid contagion to other institutions
and grant an exemption. However, this amounts to a breach of the equality
principle as creditors standing in the same category can be exempt from being
bailed-in because they are SIFIs or globally systemic important banks (G-SIBs),
which in turn creates moral hazard—some institutions can take more risk because
they would not be bailed-in due to their systemic implication.
The Financial Stability Board’s principle is a preventive measure which
discourages banks from holding liabilities issued by other banks that can be made
subject to write-down. Conversely, the legal instrument under article 44
paragraph 3 of the BRRD is a discretionary power given to the Resolution
Authorities so that they can decide, after evaluation, when it is appropriate not
to use the bail-in tool due to the possibility of generating a contagion that, in turn,
produces financial instability.
Secured transactions are not currently affected, as the bail-in tool cannot be
applied to assets on which a security interest has been created.117
C. The U.S. Regulation on Bail-in
In the U.S., the Dodd-Frank Act118 created a special federal receivership
process with broad powers to resolve failing financial companies that pose a
significant risk to the financial stability of the country in a manner that
mitigates such risk and minimizes moral hazard.119 The authority to resolve the
failing financial company120 is entrusted to the Federal Deposit Insurance
Corporation (FDIC), which acts as the Orderly Liquidation Authority (OLA).
Section 204(a)(1) of Dodd-Frank Act indicates that creditors and shareholders
will bear the losses of the financial company.
In 2013, the FDIC outlined its strategy to address the resolution of SIFIs. The
core of its strategy was the “Single Point of Entry” (SPOE) resolution.121
Additionally, the FDIC also underlined that the Dodd-Frank Act provides itself
with certain statutory authority to effect an orderly resolution; for example, the
LAW AND CONTEMPORARY PROBLEMS [Vol. 81:87
FDIC may establish a bridge institution and transfer to it assets and liabilities of
the holding company without obtaining consent or approval. To implement the
SPOE strategy, the FDIC is to be appointed receiver of only the top-tier U.S.
holding company, and subsidiaries would remain open to continue performing
critical operations to avoid the disruption that would otherwise accompany their
suspension—namely, the disturbance to the financial system and the risk of
spillover effects to counterparties. The newly formed bridge financial company
would continue to provide the holding company functions of the covered
This means that the regulatory approach used in the U.S. is different
compared to the approach taken by the EU, but at the same time it should be
able to allow for the orderly resolution of a bank without spreading systemic risk.
Although it seems that due to the corporate organization structure of SIFIs in the
U.S. there are no implications in relation to the equality principle, the FDIC has
expressly stated in its SPOE strategy that in exceptional circumstances a
disparate treatment of creditors can occur—although similarly situated creditors
will not be treated differently so as to result in preferential treatment.122 There
are no implications yet for secured transactions as these currently are exempted
D. EU vs. U.S. Resolution and the Principle of Equality
Both approaches to the same phenomenon are different. The EU, on one
hand, faces certain impediments in the resolvability of SIFIs due to the corporate
organization of its financial entities.124 On the other, the U.S., due to its holding
company structure, facilitates the resolution and liquidation of failing SIFIs
through a SPOE strategy where the affected entity is the holding company and
the other essential financial and banking functions are preserved.
The practical difficulties have led EU legislators to allow SIFIs, if needed, to
breach the equality principle by exempting them from a bail-in if there is risk for
contagion—while still bailing-in other similarly situated creditors. This policy
exacerbates moral hazard. The U.S. approach is different and has minimized the
possibility of a breach of the equality principle through regulation.
Secured transactions are currently unaffected in both legal systems as result
of their exclusion from the bail-in tool.
CREDITOR EQUALITY, SECURED TRANSACTIONS, AND SYSTEMIC RISK
12. See Kimon Korres, Bankrupting Bankruptcy: Circumventing Chapter 11 Protections Through Manipulation of the Business Justification Standard in § 363 Asset Sales, and a Refined Standard to Safeguard Against Abuse , 63 FLA. L. REV. 959 , 964 ( 2011 ) (noting that “ordinarily, § 363 transactions concerned only expedited sales that were imperative to preserve values that would rapidly diminish” but recently, “there has been movement . . . toward adopting more liberal standards for approving § 363 sales” ).
13. Brubaker & Tabb, supra note 11, at 1389.
14. In re Lionel Corp., 722 F.2d 1063 ( 2d Cir . 1983 ).
15. RODRIGO OLIVARES-CAMINAL ET AL., DEBT RESTRUCTURING 193-95 (2d ed. 2016 ).
16. Id . at 195.
17. Brubaker & Tabb, supra note 11, at 1377.
18. In re Gen. Motors Corp., 407 B.R. 463 , 474 ( Bankr. S.D.N .Y. 2009 ).
19. See infra Part III.D for a critical discussion on this point.
20. See Korres, supra note 12 (titling his journal publication “Bankrupting Bankruptcy:
33. See , e.g., A. Joseph Warburton, Understanding the Bankruptcies of Chrysler and General Motors: A Primer, 60 SYRACUSE L . REV. 531 , 533 - 37 ( 2010 ).
34. The structure of Figure 2 is based on the structure of the Chrysler Reorganization . Id. at 535.
35. See In re Chrysler LLC, 405 B.R. 84 , 89 - 92 ( Bankr. S.D.N .Y. 2009 ).
36. Brubaker & Tabb, supra note 11, at 1381.
37. See Voluntary Petition, In re Chrysler LLC, 405 B.R. 84 ( Bankr. S.D.N .Y. 2009 ) (No. 09 - 50002 ).
38. In re Chrysler LLC , 405 B.R. at 91-92.
56. In re Chrysler LLC , 405 B.R. at 102.
57. Id . at 103.
58. Id . at 102.
59. Id . at 104.
60. In re Chrysler LLC , 576 F.3d 108 , 119 - 120 ( 2d Cir . 2009 ), vacated as moot, 558 U.S. 1087 ( 2009 ).
61. See , e.g., Mark J. Roe & Joo-Hee Chung , How the Chrysler Reorganization Differed from Prior Practice, 5 J. LEGAL ANALYSIS 399 , 402 ( 2013 ).
62. In re Trans World Airlines, Inc., 2001 Bankr. LEXIS 980 at * 32 ( Bankr. D. Del . 2001 ) (quoted and affirmed in In re Gen . Motors Corp., 407 B.R. 463 , 497 ( Bankr. S.D.N .Y. 2009 )).
63. Ralph Brubaker and Charles Tabb explain this in more detail using two different scenarios (see Brubaker & Tabb , supra note 11, at 1396- 98 ).
71. In re Gen. Motors Corp., 407 B.R. 463 , 479 ( Bankr. S.D.N .Y. 2009 ) (including Exhibit A: Draft DIP Facility (No . 09 - 50026 )).
72. See Voluntary Petition, In re Gen. Motors Corp., 407 B.R. 463 ( Bankr. S.D.N .Y. 2009 ) (No. 09 - 50026 ).
73. Warburton , supra note 33, at 537-38.
74. See id. at 537 (explaining that GM owed “$3.9 billion to a syndicate of lenders led by Citicorp US, Inc ., $ 1 . 5 billion to a syndicate of lenders led by JP Morgan Chase , $ 400 million to Export Development Bank Canada, and $125 million to Gelco Corporation.”).
75. In re Gen. Motors Corp., 407 B.R. at 481.
76. For more details see Warburton , supra note 33 , at 537-39.
77. Warburton , supra note 33, at 538.
108. Steven L. Schwarcz , Derivatives and Collateral: Balancing Remedies and Systemic Risk , 2015 U. ILL. L. REV . 699 , 718 - 19 ( 2015 ).
109. See supra Part III.A.3 .
110. Principles on Loss-Absorbing and Recapitalisation Capacity of G-SIBs in Resolution; Total LossAbsorbing Capacity (TLAC) Term Sheet, FIN . STABILITY BD. (Nov. 9 , 2015 ), http://www.fsb.org/wpcontent/uploads/TLAC-Principles- and-Term-Sheet-for-publication-final .pdf [https://perma.cc/Q3M3- EAUX].
111. Tobias H. Tröger , Regulatory Influence on Market Conditions in the Banking Union: the Cases of Macro-Prudential Instruments and the Bail-in Tool, 16 EUROPEAN BUS . ORG. L. REV. 588 ( 2015 ) (saying that “once implemented, the bail-in instrument must not destabilise markets. In order to prevent knock-on effects, the bail-inable instruments have to be held outside the banking sector by investors with sufficient loss-bearing capacity (e .g., insurance companies, pension funds, high-net worth individuals , hedge funds) . Under these conditions, a bank failure may become a non-disruptive event that does not imperil market participants' trust in the financial sector .”).
112. Council Directive 2014 /59, 2014 O.J. (L 173) 190 , 269 .
113. See Council Decision 2016 /859, 2016 O.J. (L 144) 3 (defines direct contagion).
114. See id. at 8 (provides the assessment methodology).
115. See id. at 3 (defines indirect contagion).
116. Id . at 8.
117. Regulation No. 596 / 2014 , 2014 O.J. (L 173) 1, 294 (states that secured liabilities including covered bonds cannot be bailed-in).
118. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 , Pub. L. No. 111 - 203 , 124 Stat. 1376 .
119. See id. § 204 .
120. Financial companies include bank holding companies as defined in Section 2 of the Bank Holding Company Act, non-bank financial companies supervised by the Board of Governors, financial subsidiaries of these previous two and brokers and dealers registered with the SEC and that are members of SIPC.
121. Resolution of Systemically Important Financial Institutions: The Single Point of Entry Strategy, 78 Fed . Reg. 243 , 76614 (Dec. 18, 2013 ).
122. See 12 CRF § 380 .27 ( 2017 ).
123. See Resolution of Systemically Important Financial Institutions: The Single Point of Entry Strategy , 78 Fed. Reg. 243 , 76614 (Dec. 18, 2013 ) (“Losses would be apportioned according to the order of statutory priority among the claims of the former equity holders and unsecured creditors, whose equity, subordinated debt and senior unsecured debt would remain in the receivership .”).
124. See Rosa Lastra, Rym Ayadi, Rodrigo Olivares-Caminal et al., The Different Legal and Operational Structures of Banking Groups in the Euro Area, and Their Impact on Bank's Resolvability, EUR. PARLIAMENT, ECON . GOVERNANCE SUPPORT UNIT (Nov . 2016 ), http://www.europarl.europa.eu/ RegData/etudes/IDAN/ 2016 /587377/IPOL_IDA( 2016 ) 587377_EN .pdf [https://perma.cc/GXL2-Z86Y].