The Intercompany Subordination Agreement is essential for corporate groups operating in Canada that maintain multiple internal lending arrangements. This document becomes necessary when a corporate group needs to establish a clear hierarchy of payment rights between different intercompany debts, particularly when external financing requires certain intercompany debts to be subordinated to others. It's commonly used in conjunction with external financing arrangements, corporate restructurings, or as part of group treasury management policies. The agreement must comply with Canadian federal laws, including the Bankruptcy and Insolvency Act, and relevant provincial legislation governing security interests and corporate affairs. It typically includes detailed provisions on payment restrictions, enforcement rights, and procedures for handling payment violations, all tailored to the Canadian legal context.
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1. Parties: Identifies all relevant group companies, including the senior creditor(s), subordinated creditor(s), and the debtor company(ies)
2. Background: Explains the context of the intercompany debt arrangements and the purpose of the subordination agreement
3. Definitions and Interpretation: Defines key terms including Senior Debt, Subordinated Debt, Enforcement Action, and Payment Blockage
4. Subordination: Core section establishing the subordination of specified intercompany debt to senior debt
5. Undertakings by Subordinated Creditors: Sets out specific promises by subordinated creditors regarding their debt and enforcement rights
6. Payment Restrictions: Details when payments on subordinated debt are permitted or prohibited
7. Turnover of Proceeds: Mechanisms for handling any payments received in violation of the subordination provisions
8. Enforcement Restrictions: Limitations on subordinated creditors' rights to take enforcement action
9. Application of Proceeds: Order of application of any recoveries or payments
10. Power of Attorney: Appointment of senior creditor as attorney to enforce subordination rights
11. Changes to Parties: Procedures for adding or removing parties to the agreement
12. Notices: Communication requirements and contact details
13. General Provisions: Standard boilerplate provisions including amendments, waivers, and governing law
1. Security Arrangements: Additional provisions regarding security interests and their priority - include when secured debt is involved
2. Bankruptcy and Insolvency Provisions: Specific provisions governing rights in bankruptcy proceedings - include when bankruptcy-specific arrangements are needed
3. Payment Blockage Mechanics: Detailed procedures for implementing payment blocks - include when complex payment restriction mechanisms are required
4. Representations and Warranties: Specific confirmations by parties - include when additional certainty about parties' status or authority is needed
5. Tax Provisions: Specific tax-related provisions - include when tax implications need to be addressed
6. Cross-Border Provisions: Provisions dealing with multiple jurisdictions - include when parties are in different countries
1. Schedule of Senior Debt: Details of all senior debt facilities and amounts
2. Schedule of Subordinated Debt: Details of all subordinated intercompany debt
3. Group Structure Chart: Diagram showing relationships between all relevant group companies
4. Form of Accession Deed: Standard form for new parties to accede to the agreement
5. Notice Details: Contact information for all parties
6. Form of Payment Blockage Notice: Standard form for implementing payment blocks
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