Subordination Agreement German
The non-accessory guarantee is generally granted to a security officer and is not affected in the event of a transfer of a loan interest to a new lender, either by transfer or innovation. The security rights of accessories share the fate of the underlying secure claim. Where a lender has been directly secured by the accessory guarantee, the security interest is transferred to the new lender when the underlying private debts are transferred to the new lender or when the interest in the loan is transferred by takeover. However, if the participation in the loan is transferred by rehabilitation (as is often the case in English law), which has resulted in the abandonment of the original claims and is then reinstated with the transfer as a new creditor, the ancillary interest will be extinguished. The Federal Court of Justice`s decision clarifies the important and so far often controversial issues of subordination agreements, particularly the period to be dealt with, the “deepness” of subordination, its duration and the legal nature. This now provides legal certainty for the development of new subordination agreements. Unlike a subordination agreement, the waiver would be risky, as it could have undesirable tax consequences. The total removal of the debt from the balance sheet could be considered by the tax authorities as an exceptional taxable benefit. Legal advisors must try to achieve the impossible by removing debts from the balance sheet of over-indebtedness while remaining on the tax balance sheet. On the basis of decisions of the Bundesfinanzhof, legal practice has developed relatively safe formulations to cover this tax risk. However, a number of questions remain unanswered as to the correct wording of subordination: with regard to the US Accounts Compliance Act (FATCA), it is not necessary for German lenders to enter into FATCA agreements. Instead, they are required to produce certain reports. Nevertheless, it is typical of LMA-based documentation to include FATCA formulations that are generally based on LMA formulation for assigning FATCA risks to lenders.
The court stressed that the parties are free to make it clear that their subordination agreement will not benefit third parties. However, when they do, subordination is not relevant to the over-indebtedness test, which is typically the purpose of subordination. Creditors and subordinated debt debtors may wish to review the wording of their subordination agreements. Most of them may be surprised to find that there is nothing in the text that clearly shows that the subordination agreement has an effect before insolvency or that it is designed as a contract for the benefit of third parties. The reason is that these requirements were only established by the Tribunal in this recent decision; Until then, subordination agreements have focused closely on the wording of Section 19 of the Insolvency Code, without making a statement on the issues raised recently by the Tribunal. For third-party creditors who have entered into subordination agreements, this decision is of particular interest, particularly with regard to the legal characterization as an arrangement, including for the protection of third parties. As noted above, this qualification results in restrictions on the termination and termination of these contracts. The relationship between third-party creditors and their debtor is generally time-limited, as opposed to the relationship between a shareholder and its subsidiary.