Template for the preparation of a subordination agreement
What is a subordination agreement?
By way of a subordination agreement, you as a creditor declare to a company that, in the event of bankruptcy or liquidation, you only want to assert your claim for a certain amount after the debts owed to the other company creditors and shareholders have been fully covered. If, for example, you have granted a loan to a company, you can declare by means of a subordination agreement that you want to have your money back only after the other creditors have been repaid.
What is the advantage?
By law, if a company is overindebted, it must report this to the court. However, if a creditor “defers” their claim or declares a so-called deferment, it is possible for a company to avoid a situation in which its finds itself overindebted in the short term.
What has to be kept in mind?
A creditor has to take into account any creditors they themselves have. If the creditor owes other creditors, then they cannot necessarily declare that their claim against the company can be paid at a later date. In particular, if the creditor goes bankrupt, then their creditors could contest the deferment.
How does a subordination agreement have to be concluded?
There are no legal provisions in this regard. However, to have proof, it should be drawn up in writing.
Other legal information and a template is available to download below.