The Lien Subordination Agreement is essential in structured financing arrangements where multiple creditors hold security interests over the same assets. This document becomes necessary when a borrower has multiple secured creditors and there's a need to establish a clear hierarchy of security interests. Under Indian law, while security interests are generally ranked by their date of creation, parties can contractually agree to alter these priorities. The agreement typically includes detailed provisions about payment waterfall, enforcement rights, standstill obligations, and turnover provisions. It's particularly relevant in project financing, corporate restructuring, and refinancing scenarios where multiple lenders are involved. The document must comply with Indian contract law, property law, and banking regulations, including the Transfer of Property Act, 1882 and the SARFAESI Act, 2002.
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1. Parties: Identifies all parties to the agreement including the senior lienholder, subordinated lienholder(s), and the borrower/debtor
2. Background: Recitals explaining the existing security interests, their creation, and the purpose of the subordination arrangement
3. Definitions: Defines key terms including Senior Debt, Subordinated Debt, Collateral, Security Interest, and Enforcement Actions
4. Subordination: Core provision establishing the subordination of specified security interests and setting out the ranking of priorities
5. Representations and Warranties: Statements by each party confirming their authority, validity of security interests, and other material facts
6. Covenants: Ongoing obligations of the parties, including restrictions on enforcement actions by subordinated lienholders
7. Payment Terms: Provisions regarding permitted payments to subordinated lienholders and payment blockage events
8. Enforcement Provisions: Rights and limitations regarding enforcement of security interests, including standstill obligations
9. Term and Termination: Duration of the agreement and circumstances under which it may be terminated
10. Miscellaneous: Standard boilerplate provisions including notices, amendments, governing law, and jurisdiction
1. Turnover Provisions: Required when there is a need to specify the treatment of payments received in violation of the subordination terms
2. Future Advances: Include when the agreement needs to address the treatment of additional advances by either senior or subordinated lienholders
3. Insurance and Condemnation Proceeds: Include when specific arrangements for insurance or condemnation proceeds need to be addressed
4. Assignment and Transfer: Include when parties anticipate the possibility of transferring their rights under the security documents
5. Intercreditor Provisions: Required when there are multiple subordinated lienholders and their relationships need to be regulated
6. Bankruptcy Provisions: Include specific provisions dealing with insolvency scenarios and the parties' rights in such events
1. Schedule 1 - Description of Collateral: Detailed description of the property or assets subject to the security interests
2. Schedule 2 - Existing Security Documents: List and details of all security documents creating the senior and subordinated security interests
3. Schedule 3 - Senior Debt Documents: Details of credit agreements and other documents evidencing the senior debt
4. Schedule 4 - Subordinated Debt Documents: Details of credit agreements and other documents evidencing the subordinated debt
5. Appendix A - Form of Notice: Standard form for any notices required under the agreement
6. Appendix B - Deed of Accession: Form for additional parties to accede to the agreement if required
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