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Subordination Agreement

Key points and template

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Key Points included in This Subordination Agreement

Amount and scope of the claim’s subordination
Whether the creditor agrees to suspend its claims
What happens with the creditor’s claims in case of the company’s bankruptcy
Additional covenants in case of risk of over-indebtedness

Use This Subordination Agreement if …

… your company is temporarily in a difficult financial situation, or even at risk of over-indebtedness or insolvency

… a creditor is willing to postpone its claim to those of the company’s other creditors in order to remedy a difficult financial situation

What is a Subordination Agreement?

Under a subordination agreement, the creditor (who is often a shareholder) agrees that, in the event of bankruptcy or liquidation of a company, it will not assert its claim to the extent necessary for the claims of the other creditors to be repaid in full.

As a rule, the creditor not only agrees to a subordination but also the suspension of the claim for the required duration.

The subordination is not a waiver of claims. It serves to satisfy the other creditors and, in the event of over-indebtedness or if it is threatened, to avert notification of the judge of over-indebtedness of the company, i.e. filing for bankruptcy (Art. 725 para. 2 CO). The subordination should be seen as part of a comprehensive restructuring concept.