The Intercompany Subordination Agreement is a crucial document in South African corporate law practice, used to manage and structure internal debt priorities within company groups. It becomes necessary when a corporate group has multiple internal lending arrangements and needs to establish a clear hierarchy of debt repayment. This document is particularly relevant in contexts such as group restructuring, refinancing, or when implementing new group funding structures. It ensures compliance with South African companies legislation and banking regulations while providing clarity on the treatment of intercompany debts in both regular operations and distressed scenarios. The agreement typically includes detailed provisions on payment mechanics, enforcement restrictions, and the rights of various group entities in their capacities as creditors and debtors.
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1. Parties: Identification of the parties including the senior creditor(s), subordinated creditor(s), and the principal debtor company
2. Background: Context of the existing debts and reason for subordination arrangement
3. Definitions and Interpretation: Definitions of key terms including Senior Debt, Subordinated Debt, Trigger Events, and interpretation clauses
4. Subordination: Core subordination provisions including ranking of debts and payment restrictions
5. Duration of Subordination: Period of effectiveness and conditions for termination of subordination
6. Payments and Treatment of Subordinated Debt: Rules regarding permitted payments, blocked payments, and treatment of received payments
7. Turnover of Non-Permitted Recoveries: Obligation to turn over any payments received in breach of subordination
8. Undertakings: Key promises by the parties, including restrictions on debt enforcement and amendments
9. Preservation of Subordinated Debt: Provisions ensuring subordinated debt remains valid despite payment restrictions
10. Power of Attorney: Appointment of senior creditor as attorney to enforce subordination terms
11. Breach and Remedies: Consequences of breach and available remedies
12. General Provisions: Standard boilerplate clauses including notices, amendments, governing law
1. Security Provisions: Required if any security interests are involved in the debt structure
2. Further Subordinated Creditors: Mechanism for additional creditors to accede to the agreement
3. Exchange Control Provisions: Required for cross-border arrangements subject to South African exchange control
4. Tax Gross-up: Provisions dealing with withholding tax if applicable to payments
5. Regulatory Compliance: Specific provisions required for regulated entities
6. Subordinated Creditor Committee: Governance provisions if multiple subordinated creditors are involved
7. Restructuring Provisions: Specific provisions dealing with potential corporate restructuring scenarios
1. Schedule 1 - Details of Senior Debt: List and details of all senior debt facilities
2. Schedule 2 - Details of Subordinated Debt: List and details of all subordinated debt arrangements
3. Schedule 3 - Form of Accession Deed: Standard form for new creditors to join the agreement
4. Schedule 4 - Notice of Subordination: Form of notice to be given regarding the subordination arrangement
5. Schedule 5 - Group Structure Chart: Diagram showing relationship between all relevant group companies
6. Schedule 6 - Payment Terms: Detailed terms regarding permitted payments and payment calculations
7. Appendix A - Deed of Priority: If required, sets out detailed ranking and priority arrangements between creditors
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