I’m Locked Up, They Won’t Let Me Out (Maybe): Enforceability of Lockup Provisions in Bankruptcy
September 2025
In a Chapter 11 bankruptcy, a debtor would ideally reach agreement with its creditors on a consensual plan of reorganization quickly and minimize the time it spends in bankruptcy. The most common method utilized by debtors, usually even before the beginning of a Chapter 11 case, is entering into a restructuring support agreement (“RSA”) with key financial or funded debt creditors. In principal part, RSAs set out the terms of a plan of reorganization and require signatory creditors to vote in favor of a plan consistent with those terms.
RSAs ease the path to consensual restructuring by locking in creditor support for a plan. From the creditors’ perspective, RSAs are equally beneficial as they provide signatory creditors with certain consent rights over the plan and lock the debtors into an agreed-upon plan (subject to certain “outs”). Generally, bankruptcy courts do not take issue with RSAs in most circumstances and, indeed, it has become typical for debtors to abide by prepetition RSAs even without seeking to assume such agreements1.
RSAs, however, are not a one-size-fits-all solution. Although they are well-suited for financial or funded debt creditors, RSAs are often not achievable or practical for a debtor to utilize in dealing with, for example, large trade creditors, employees or unions, whose support for a plan can be equally critical to successfully executing a Chapter 11 restructuring. In recent years, debtors in large Chapter 11 cases have looked to lock up the votes of these creditors in favor of a plan by including a provision (a “Lockup Provision”) in other agreements or court orders that settled such parties’ claims, or in other court-approved commercial agreements with the debtors.
In a Chapter 11 bankruptcy, a debtor would ideally reach agreement with its creditors on a consensual plan of reorganization quickly and minimize the time it spends in bankruptcy. The most common method utilized by debtors, usually even before the beginning of a Chapter 11 case, is entering into a restructuring support agreement (“RSA”) with key financial or funded debt creditors. In principal part, RSAs set out the terms of a plan of reorganization and require signatory creditors to vote in favor of a plan consistent with those terms.
RSAs ease the path to consensual restructuring by locking in creditor support for a plan. From the creditors’ perspective, RSAs are equally beneficial as they provide signatory creditors with certain consent rights over the plan and lock the debtors into an agreed-upon plan (subject to certain “outs”). Generally, bankruptcy courts do not take issue with RSAs in most circumstances and, indeed, it has become typical for debtors to abide by prepetition RSAs even without seeking to assume such agreements1.
RSAs, however, are not a one-size-fits-all solution. Although they are well-suited for financial or funded debt creditors, RSAs are often not achievable or practical for a debtor to utilize in dealing with, for example, large trade creditors, employees or unions, whose support for a plan can be equally critical to successfully executing a Chapter 11 restructuring. In recent years, debtors in large Chapter 11 cases have looked to lock up the votes of these creditors in favor of a plan by including a provision (a “Lockup Provision”) in other agreements or court orders that settled such parties’ claims, or in other court-approved commercial agreements with the debtors.
U.S. Corporate Bankruptcy Filings by Year 2010–2024
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Source: S&P Global
U.S. Corporate Bankruptcy Filings by Year 2010–2024
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Source: S&P Global
In particular, Lockup Provisions have been attempted in several airline bankruptcy cases including SAS (Scandinavian Airlines), Aeroméxico and LATAM Airlines. However, as a technique, such provisions should be attractive to debtors in other industries as well. Lockup Provisions, however, have had mixed success, as many bankruptcy courts take a skeptical view of their enforceability. Moreover, the consequences of a finding that a Lockup Provision is unenforceable (and impermissible) can be severe, including potential disqualification of the votes of involved creditors2.
Lockup Provisions recently came to the forefront in another airline bankruptcy case, In re GOL Linhas Aéreas Inteligentes, et al. (“GOL”), in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). Although the Bankruptcy Court in GOL ultimately held that the Lockup Provisions at issue were unenforceable, its decision provides helpful guidance on the circumstances in which such provisions may be permitted in the future. The GOL debtors’ approach following this decision may also provide a pathway for debtors to draft similar provisions that achieve the same substantive outcome without triggering a court’s ire. Debtors should exercise caution as Lockup Provisions generally—and even the GOL debtors’ alternative approach—are a risky endeavor that may very well be struck down, especially because their approval is highly dependent upon the particular facts and circumstances of any given bankruptcy case.
A Brief History of U.S. Bankruptcy Law
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A Brief History of U.S. Bankruptcy Law
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The GOL Decision
In the months prior to entering into an RSA with their largest secured creditor and the Official Committee of Unsecured Creditors (the “Committee”), the GOL debtors tried to obtain court orders authorizing and directing the debtors and some of their aircraft and engine lessors to restructure lease obligations. These agreements included Lockup Provisions, which stated:
“If a disclosure statement for a Chapter 11 Plan is approved by the Bankruptcy Court, [Aircraft Lessor] agrees that…it shall vote (a) to accept the Chapter 11 Plan so long as (i) the Chapter 11 Plan, and a disclosure statement filed by the Debtors (the ‘Disclosure Statement’) (A) is not inconsistent with the terms contained in the Term Sheet, the Definitive Documentation, or the Approval Order; (B) no Events of default have occurred and are continuing in respect of any claims that arise out of or relate to this Term Sheet and the Definitive Documentation…; and [it shall vote] (b) against any other plan of reorganization filed by any party other than the Debtors…”3
The Committee and the U.S. Trustee objected to the Lockup Provisions, arguing that they violated section 1125(b) of the Bankruptcy Code, which bars debtors from soliciting votes on a plan of reorganization prior to filing a disclosure statement4.
The GOL Decision
In the months prior to entering into an RSA with their largest secured creditor and the Official Committee of Unsecured Creditors (the “Committee”), the GOL debtors tried to obtain court orders authorizing and directing the debtors and some of their aircraft and engine lessors to restructure lease obligations. These agreements included Lockup Provisions, which stated:
“If a disclosure statement for a Chapter 11 Plan is approved by the Bankruptcy Court, [Aircraft Lessor] agrees that…it shall vote (a) to accept the Chapter 11 Plan so long as (i) the Chapter 11 Plan, and a disclosure statement filed by the Debtors (the ‘Disclosure Statement’) (A) is not inconsistent with the terms contained in the Term Sheet, the Definitive Documentation, or the Approval Order; (B) no Events of default have occurred and are continuing in respect of any claims that arise out of or relate to this Term Sheet and the Definitive Documentation…; and [it shall vote] (b) against any other plan of reorganization filed by any party other than the Debtors…”3
The Committee and the U.S. Trustee objected to the Lockup Provisions, arguing that they violated section 1125(b) of the Bankruptcy Code, which bars debtors from soliciting votes on a plan of reorganization prior to filing a disclosure statement4.
In considering the issue, the Bankruptcy Court conducted a survey of case law regarding RSAs and Lockup Provisions5. Among others, the Bankruptcy Court highlighted two airline cases which, like GOL, were decided by bankruptcy judges in the Southern District of New York6:
- In re SAS AB: The bankruptcy court rejected a Lockup Provision contained in new collective bargaining agreements between the debtors and their pilots unions, emphasizing that the agreements contained “no particular plan terms and [were] without regard to whether there might be aspect[s] of the plan that the claimant might legitimately have opinions about…”7
- In re Grupo Aeroméxico: The bankruptcy court approved a Lockup Provision contained in claim settlement agreements (and related court orders) between the debtors and fleet creditors, reasoning that the creditors were “sophisticated folks” and noting that (a) it had already approved several settlements containing similar provisions without objections from any party, and (b) that some similar settlements did not contain the provisions, weighing against any indication of coercion by the debtors8.
In considering the issue, the Bankruptcy Court conducted a survey of case law regarding RSAs and Lockup Provisions5. Among others, the Bankruptcy Court highlighted two airline cases which, like GOL, were decided by bankruptcy judges in the Southern District of New York6:
- In re SAS AB: The bankruptcy court rejected a Lockup Provision contained in new collective bargaining agreements between the debtors and their pilots unions, emphasizing that the agreements contained “no particular plan terms and [were] without regard to whether there might be aspect[s] of the plan that the claimant might legitimately have opinions about…”7
- In re Grupo Aeroméxico: The bankruptcy court approved a Lockup Provision contained in claim settlement agreements (and related court orders) between the debtors and fleet creditors, reasoning that the creditors were “sophisticated folks” and noting that (a) it had already approved several settlements containing similar provisions without objections from any party, and (b) that some similar settlements did not contain the provisions, weighing against any indication of coercion by the debtors8.
Based on this case law, the Bankruptcy Court determined that, although Lockup Provisions are not per se improper, there are two key factors that courts consider in deciding whether such provisions are permissible: (1) whether creditors had sufficient information about the plan they were committing to vote for; and (2) whether creditors had meaningful choice to willingly agree during the negotiation phase or to rescind their agreement based on subsequent information9. Applying these factors, the Bankruptcy Court held that the Lockup Provisions at issue were impermissible because the lessors had neither “adequate information about the terms of a potential plan” nor “meaningful choice or ‘outs’”10.
With respect to the first factor, the Bankruptcy Court explained that the GOL cases were in their infancy, the debtors were months away from filing a disclosure statement and had not even exchanged drafts of a disclosure statement or plan with counterparties11. Although the Bankruptcy Court did not “opine on the exact amount of information or stage of a case at which a [Lockup Provision] becomes permissible”, it found that there was not any adequate information about plan terms at the time12.
With respect to the second factor, the Bankruptcy Court found that the Lockup Provisions also did not provide meaningful choice because they required the lessors to vote for any plan that embodied the terms of their long-term agreements with the debtors, notwithstanding any legitimate objections that the lessors may have to a broader plan structure13. Moreover, the Bankruptcy Court reasoned that, although creditor sophistication is a “highly relevant factor”, sophistication is not an invitation to “strip away” the protections of section 1125(b) of the Bankruptcy Code, and the Lockup Provisions further risked “silencing the votes of” other creditors by giving the debtors the votes they needed to confirm a plan without needing to deal with other, smaller creditors14. Accordingly, the Bankruptcy Court ordered the Lockup Provisions severed from the long-term agreements15.
Key Dates: GOL Linhas Aéreas Inteligentes
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Key Dates: GOL Linhas Aéreas Inteligentes
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Subsequent Developments
Hard on the heels of this decision, the GOL debtors sought an alternative means to tie up creditor support for a future plan of reorganization. This time, however, rather than seeking to contractually limit how creditors could vote, the debtors sought to limit who could vote. Shortly after the Bankruptcy Court rendered its oral decision on the Lockup Provisions (and just three days before the Bankruptcy Court issued its written decision), the GOL debtors filed a motion seeking approval of another stipulation with some of their aircraft and engine lessors—one that reflected this new approach16. The key part of this new provision stated:
“Each Lessor…agrees that it may assign, transfer, dispose of or otherwise convey any general unsecured claim it may have against any of the Debtors that relates to or arises from the Stipulation, the Leases or the related documents with respect to such Leases, this Summary of Terms, the Aircraft, and/or any other transactions that are the subject of this Summary of Terms; provided that such Lessor shall, with respect to any such general unsecured claim, (i) retain all voting rights and interests and (ii) not take direction or instruction from any third party with respect to its voting rights and interests, in each case of the foregoing (i) and (ii), until the voting deadline established by the Court for the Chapter 11 Plan has passed…”17
The Committee informed the debtors of its intent to object to the new provision shortly thereafter18. In response, the debtors revised the provision to state, in relevant part, as follows (the “Claim Transfer Provision”):
“Each Lessor…agrees that it may not sell, assign, transfer, dispose of or otherwise convey any claim it may have against any of the Debtors that relates to or arises from the Stipulation, the Leases or the related documents, this Summary of Terms, the Aircraft, and/or any other transactions that are the subject of this Summary of Terms; provided that such Lessor…may, with respect to any such claim, sell, transfer, dispose of or otherwise convey a participation in such Lessor’s…rights to receive any distributions on account of such claim under the Chapter 11 Plan; provided, further, that any such sale, assignment, transfer, disposition or other conveyance of such participation…shall not be effective until the voting deadline established by the Court for the Chapter 11 Plan has passed19.”
The Committee subsequently objected, arguing that the Claim Transfer Provision was another impermissible attempt to restrict creditor votes. Principally, the Committee argued that the Claim Transfer Provision’s attempt to split a claim’s economic rights to receive distributions under a plan from its voting rights violated section 1126(a) of the Bankruptcy Code, which provides that only the holder of a “claim” (defined to mean, inter alia¸ a “right to payment”) is entitled to vote on a plan20. Further, the Committee pointed out that allowing the Claim Transfer Provision could result in a significant number of creditors that either (a) lack any motivation to vote on the plan (i.e., because they no longer have any right to receive distributions) or (b) are motivated to vote for reasons other than the treatment of their claim under the plan (i.e., will likely vote in favor because they have already entered into long-term deals with the debtors and no longer have the right to receive distributions on their claim)21.
Notwithstanding the Committee’s objection, the Bankruptcy Court did not rule on the permissibility of the Claim Transfer Provision. Instead, the Bankruptcy Court approved the stipulation but reserved the rights of the Committee to challenge the Claim Transfer Provision’s applicability “to any actual claim assignment or participation interest…in connection with solicitation or confirmation of any plan of reorganization22.” In other words, the Bankruptcy Court preserved the ability of the Committee to argue that the Claim Transfer Provision was unenforceable, and that a claim’s voting rights should pass to any purchaser or assignee of the claim along with the economic rights, at a later stage.
Ultimately, however, the Bankruptcy Court did not have the opportunity to decide the permissibility of the Claim Transfer Provision because the Committee and the GOL debtors subsequently entered into a global settlement (and related RSA) whereby the Committee agreed to support the debtors’ plan of reorganization23.
Notwithstanding the Committee’s objection, the Bankruptcy Court did not rule on the permissibility of the Claim Transfer Provision. Instead, the Bankruptcy Court approved the stipulation but reserved the rights of the Committee to challenge the Claim Transfer Provision’s applicability “to any actual claim assignment or participation interest…in connection with solicitation or confirmation of any plan of reorganization22.” In other words, the Bankruptcy Court preserved the ability of the Committee to argue that the Claim Transfer Provision was unenforceable, and that a claim’s voting rights should pass to any purchaser or assignee of the claim along with the economic rights, at a later stage.
Ultimately, however, the Bankruptcy Court did not have the opportunity to decide the permissibility of the Claim Transfer Provision because the Committee and the GOL debtors subsequently entered into a global settlement (and related RSA) whereby the Committee agreed to support the debtors’ plan of reorganization23.
Closing Insights
Ultimately, debtors seeking to make use of Lockup Provisions should keep in mind that their enforceability is highly dependent upon the facts and circumstances of a particular bankruptcy case. The Bankruptcy Court’s decision in GOL, however, provides helpful general guidelines for debtors (and creditors) as to when Lockup Provisions may be enforceable by distilling existing case law into two relatively simple factors: (1) the amount of information regarding the terms of a plan of reorganization that was available to creditors at the time the Lockup Provision was entered into; and (2) evidence of meaningful choice on the part of creditors to enter into the Lockup Provision (or evidence of the availability of “outs” for creditors from the Lockup Provision).
In addition, the GOL debtors’ secondary approach—the Claim Transfer Provision—may provide an interesting potential alternative to a more traditional Lockup Provision. Debtors should exercise caution with respect to such an alternative, however, because the Bankruptcy Court did not ever rule on the enforceability or permissibility of the Claim Transfer Provision. The fact that the Bankruptcy Court expressly preserved the right of the Committee to challenge the enforceability of the Claim Transfer Provision, coupled with the Bankruptcy Court’s earlier decision regarding the Lockup Provisions, indicates that future courts may be likely to view such alternative contractual mechanisms with a high degree of skepticism.
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