Deed Of Subordination Template for England and Wales

A Deed of Subordination is a critical legal document that formally establishes the priority ranking between different creditors' claims against the same debtor. Under England and Wales law, this deed ensures that junior creditors cannot enforce their debt or receive payments until senior creditors are fully satisfied, providing essential protection in complex financing structures.

When do you need this document?

You need a Deed of Subordination when your business involves multiple layers of debt financing. This commonly occurs in acquisition financing where existing debt must be subordinated to new senior facilities, corporate restructurings where creditor priorities need clarification, and mezzanine financing arrangements. The document is also essential when refinancing existing debt structures, particularly where new lenders require priority over existing creditors. Property development projects often require subordination deeds to accommodate construction loans taking priority over existing charges.

Key legal considerations

The subordination provisions form the core of this deed, establishing clear payment waterfalls and enforcement restrictions. Junior creditors must typically agree not to demand payment, enforce security, or commence insolvency proceedings without senior creditor consent. Turnover provisions require junior creditors to immediately transfer any payments received to senior creditors. The deed must clearly define the subordination period, which may be until senior debt is fully repaid or a specific date. Consider including intercreditor provisions covering information sharing, amendment procedures, and dispute resolution mechanisms. Ensure the deed addresses what happens in insolvency scenarios, as the Insolvency Act 1986 may affect subordination arrangements.

Legal requirements in England and Wales

Under the Law of Property Act 1925, deeds must be executed with specific formalities including written format, clear intention to create a deed, proper execution by all parties, and delivery. The Companies Act 2006 requires companies to execute deeds through directors' signatures or affixing the company seal with proper authorization. If the subordinated debt is secured by charges over company assets, registration with Companies House may be required under the Companies Act 2006. The Financial Collateral Arrangements Regulations 2003 may apply where financial collateral is involved, potentially affecting priority rules. Consider whether the arrangement constitutes a financial promotion requiring FCA authorization. Ensure all parties have proper corporate authority to enter the deed, and obtain board resolutions where necessary. The deed should comply with the Law of Property (Miscellaneous Provisions) Act 1989 regarding formalities for agreements affecting land interests.