… 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
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.
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