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Loan Subordination Agreement Template for England and Wales

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Key Requirements PROMPT example:

Loan Subordination Agreement

"I need a Loan Subordination Agreement to establish priority between a £5M senior bank loan and a £2M shareholder loan for our manufacturing business, with the shareholder loan to be fully subordinated until the bank loan is repaid."

Document background
A Loan Subordination Agreement becomes necessary when a borrower has multiple creditors and needs to establish a clear hierarchy of debt repayment. This agreement, governed by English and Welsh law, is particularly crucial in complex financing structures, restructurings, or when new debt is being introduced alongside existing facilities. The document sets out the respective rights of senior and junior creditors, including payment conditions, enforcement restrictions, and insolvency arrangements. It provides certainty and protection for senior lenders while allowing borrowers to access additional financing through subordinated debt.
Suggested Sections

1. Parties: Identifies all parties to the agreement including senior and junior creditors, and the debtor

2. Background: Explains the context of the existing debts and reason for subordination

3. Definitions: Defines key terms including Senior Debt, Junior Debt, Enforcement Action, etc.

4. Subordination Provisions: Core terms establishing the subordination of junior debt to senior debt

5. Turnover Provisions: Requirements for junior creditors to turn over received payments to senior creditors

6. Restrictions on Junior Debt: Limitations on payments, enforcement actions, and amendments to junior debt

Optional Sections

1. Security Provisions: Additional provisions required when any of the debt is secured by collateral or other security interests

2. Intercreditor Provisions: Additional provisions governing relationships between multiple creditor groups when more than two levels of debt exist

3. Buy-out Rights: Optional provisions outlining rights of junior creditors to purchase senior debt in specific circumstances

Suggested Schedules

1. Form of Accession Deed: Template document for new parties to accede to the agreement

2. Details of Existing Senior Debt: Schedule listing all senior debt facilities, amounts, and key terms

3. Details of Existing Junior Debt: Schedule listing all junior debt facilities, amounts, and key terms

4. Notice Details: Contact information and notice requirements for all parties to the agreement

Authors

Alex Denne

Head of Growth (Open Source Law) @ tiktok³ÉÈ˰æ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

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Companies Act 2006: Primary legislation governing company law in England and Wales, particularly relevant for corporate authority and registration requirements in subordination agreements

Insolvency Act 1986: Key legislation concerning creditor priorities and insolvency proceedings, crucial for determining the effectiveness of subordination arrangements

Law of Property Act 1925: Fundamental legislation governing property rights and security interests, relevant when the subordination agreement involves secured debts

Financial Services and Markets Act 2000: Regulatory framework for financial services in the UK, applicable when regulated entities are parties to the subordination agreement

Financial Collateral Arrangements (No.2) Regulations 2003: Regulations governing financial collateral arrangements, relevant for subordination agreements involving financial collateral

Consumer Credit Act 1974: Legislation protecting consumer interests in credit arrangements, applicable if the subordination agreement involves consumer lending

English Contract Law Principles: Common law principles governing contract formation and enforcement, including offer, acceptance, consideration, and intention to create legal relations

Equitable Principles of Subordination: Common law and equitable principles governing the ranking and priority of debts and creditors' rights

EU Retained Law: Post-Brexit retained EU legislation that continues to affect financial and commercial arrangements in England and Wales

Cross-border Insolvency Regulations: Regulations governing international insolvency proceedings and recognition of foreign proceedings in cases involving international parties

FCA/PRA Regulatory Requirements: Financial Conduct Authority and Prudential Regulation Authority requirements applicable to regulated entities involved in subordination arrangements

Companies House Filing Requirements: Registration and filing requirements for company charges and other relevant documents with the UK Companies Registry

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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