In its decision of 5 March 2015 (case IX ZR 133/144), the Bundesgerichtshof (Bundesgerichtshof – BGH) ruled on the legal nature of qualified subordination agreements as well as on legal requirements. The judgment, which deals with a very controversial restructuring instrument, will have important practical consequences. Subordination agreements can be used in a variety of circumstances, including complex corporate debt structures. According to Section 2953.3 of the California Civil Code, all subordination agreements must include: a violation of contract law may occur if the party refuses to sign the subordination agreement to subordinate its security interests. As part of an enforceable subordination agreement, a sub-unit undertakes to subordinate its interest to the security interest of another later instrument. Such an agreement can be difficult to implement later on, as it is only a promise to reach an agreement in the future. As a result, primary loan lenders will want to retain the first position of the right to repay the debt and will not approve the second loan until after the signing of a subordination contract. However, the second creditor may object. As a result, it can be difficult for homeowners to refinance their assets.
A subordination agreement deals with a legal agreement that places one debt above the other to obtain repayments from a borrower. The agreement changes the position of the program. The preference for debt repayment plays an important role when a borrower is either insolvent or declared bankruptThe final status of a human or non-human entity (a company or a government agency) is not in a position to repay its unpaid debts to creditors. A subordination agreement recognizes that one party`s right to interest or debt is subordinated to another party when the borrower`s assets are liquidated. Under the automatic subordination agreement, the implementation and registration of the main subordination agreements and agreements are carried out simultaneously. If z.B. In addition, it is stated in the Federal Court of Justice that payments made during the duration of the bid agreement can be recovered free of charge under s. 134 InsO. The term “free” under insO must be understood in the broadest 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 upholds this in the event of payment without a definitive reason. Possible termination extends to all payments made during a period of four years prior to the initiation of the insolvency proceedings and is also possible if claims for unjust enrichment are excluded.
In its judgment, the Federal Court of Justice specifies that the provisions of the German Insolvency Code (InsO) dealing with subordination agreements are applicable even if subordination is not granted by a debtor, but, as in this case, by a third party such as Mezzanine`s creditors.