Subordination Agreement

Key Points and English Template

Use a 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

Key Points included in a Subordination Agreement

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.

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