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A Subordination Agreement changes the priority order of debts when multiple creditors have claims against the same property or assets. In South Africa, these agreements often come into play with home loans, business financing, and property development, where lenders need to establish which debt gets paid first.

Banks and financial institutions commonly require these agreements before approving additional loans on mortgaged properties. For example, when a homeowner wants to take out a second bond, the primary bondholder must agree to subordinate their claim. Under SA common law and the Companies Act, these agreements help manage risk and create clear repayment hierarchies, especially during debt restructuring or business rescue proceedings.

Use a Subordination Agreement when you need to rearrange the payment priority between multiple creditors in South Africa. This typically happens when taking out additional financing on property that already has a bond, or when restructuring business debt. For example, banks often require these agreements before approving second mortgages or business expansion loans.

The agreement becomes essential during major financial changes like refinancing existing debt, selling business assets, or entering business rescue proceedings. Property developers frequently need them to secure construction finance, while companies use them to maintain access to working capital by adjusting existing debt rankings. Getting the agreement in place early prevents disputes and keeps financing options open.

• Debt Subordination: Used mainly in corporate financing to establish payment rankings between multiple lenders, especially common in business rescue scenarios
• Property Bond Subordination: Specifically for real estate transactions when arranging priority between first and second mortgage bonds
• General Security Subordination: Covers all types of security interests, including movable and immovable property
• Conditional Subordination: Only takes effect when specific triggers occur, like default events or refinancing
• Intercreditor Subordination: Establishes complex priority arrangements between multiple lenders in large commercial transactions

• Banks and Financial Institutions: Primary users of Subordination Agreements, both as senior lenders protecting their interests and as new lenders requiring subordination from existing creditors
• Property Owners: Need these agreements when seeking additional financing on mortgaged properties or restructuring existing loans
• Business Rescue Practitioners: Use them during rescue proceedings to reorganize debt priorities and secure new funding
• Corporate Legal Teams: Draft and review agreements to ensure compliance with SA banking regulations and Companies Act requirements
• Business Directors: Sign these agreements when restructuring company debt or securing additional financing

• Debt Details: Gather full information about existing loans, including account numbers, outstanding amounts, and current security arrangements
• Party Information: Collect details of all creditors, debtors, and any guarantors involved, including registration numbers for companies
• Security Documentation: Review existing bond documents, security agreements, and credit facility terms
• Priority Structure: Clearly outline the new ranking order of debts and any conditions affecting this ranking
• Compliance Check: Ensure alignment with SA banking regulations and Companies Act requirements before finalizing
• Signing Authority: Confirm proper authorization levels for all parties involved in the agreement

• Parties and Definitions: Full legal names and details of all creditors, debtors, and any guarantors involved
• Debt Description: Precise details of all affected debts, securities, and their current priority rankings
• Subordination Terms: Clear statement of new priority order and any conditions affecting the subordination
• Payment Provisions: Rules governing payments during normal operations and default scenarios
• Enforcement Rights: Specific powers and limitations of each creditor regarding security enforcement
• Duration and Termination: Clear timeline and conditions for ending the subordination arrangement
• Governing Law: Explicit reference to South African law and jurisdiction for dispute resolution

A Subordination Agreement is often confused with a Bond Purchase Agreement in South African finance law, but they serve distinctly different purposes. While both deal with debt arrangements, their core functions and timing differ significantly.

• Primary Purpose: Subordination Agreements rearrange existing debt priorities between creditors, while Bond Purchase Agreements establish new debt relationships through the initial purchase of bonds
• Timing of Use: Subordination Agreements typically come into play after debt exists and needs restructuring, whereas Bond Purchase Agreements mark the start of a new debt relationship
• Party Relationships: Subordination involves existing creditors adjusting their rankings, while Bond Purchase creates a new creditor-debtor relationship
• Legal Effect: Subordination modifies existing rights between parties, while Bond Purchase creates entirely new rights and obligations