14 Oct Was Heisst Subordination Agreement
German insolvency law refers to subordination agreements. However, it prescribes the exact requirements for the content of subordination agreements. The Federal Court of Justice (BGH) has now ruled on the legal nature and legal requirements of a qualified subordination agreement. The decision has important practical consequences. The BGH answers the question of the legal nature of the subordination by the fact that it is a debt modification agreement, which, however, does not change the existence of the claim itself, but its rank. The agreement between the parties is modified by the fact that the creditor can only demand payment of his claim if sufficient free assets of the debtor are available. However, if the debtor is obliged to apply for the commencement of insolvency proceedings, the creditor is not entitled to payment. The signed agreement must be confirmed by a notary and registered in the official county registers in order to be enforceable. “Subordination agreement.” Merriam-Webster.com Legal Dictionary, Merriam Webster, www.merriam-webster.com/legal/subordination%20agreement. Retrieved November 30, 2020. In 2006 and 2007, the debtor concluded a use agreement and a loan agreement with the defendant`s predecessors.
Neither the defendant nor its predecessors are or have been shareholders in the debtor. The contracts were awarded to the defendant who had received interest payments during the period from January to March 2008. What drove you to look for subordination agreements? Please let us know where you read or heard it (including the quote, if possible). In its judgment, the BGH clarifies that the provisions of the German Insolvency Code (InsO) relating to subordination agreements are also applicable if the subordination is not granted by a shareholder of the debtor, as in the present case, but by a third party creditor such as mezzanine creditors. A subordination agreement recognizes that the claim or interest of one party is greater than that of another party in the event that the borrower`s assets must be liquidated to repay the debt. In addition, the BGH declares that payments made during the term of the subordination contract may be claimed free of charge in return in accordance with § 134 InsO. The term “free” in the context of InsO must be understood in a broad sense and can be confirmed if the reduction in assets is not offset by a corresponding increase in the creditor`s assets. The Federal Court of Justice confirms this in the event of payment without legal grounds. Possible termination extends to payments made during a period of four years prior to the commencement of insolvency proceedings and is also possible if claims for undue enrichment are excluded. For third creditors that have concluded subordination agreements, this Decision will be of particular interest, in particular as regards the legal classification of an agreement which also protects third parties.
As stated above, this qualification entails restrictions with respect to the termination and termination of such contracts. The relationship between third-party creditors and its debtor is generally limited in time, unlike a shareholder`s relationship with its subsidiary. If the debtor encounters financial difficulties at the time of termination of the relationship, it may not be possible for the creditor to terminate the subordination contract and obtain repayment of his claims. .