Deed Of Subordination Template for Indonesia
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What is a Deed Of Subordination?
The Deed of Subordination is a crucial document in Indonesian financing arrangements where multiple creditors are involved with different levels of priority. It becomes necessary in scenarios such as corporate restructuring, project financing, or when new debt is being introduced alongside existing facilities. The document ensures that junior creditors' rights to payment are subordinated to those of senior creditors, providing clarity and certainty in the creditor hierarchy. Under Indonesian law, such arrangements must comply with the Civil Code (KUH Perdata) and relevant OJK regulations, particularly in regulated sectors. The deed typically includes detailed provisions on payment restrictions, turnover obligations, and enforcement rights, and is especially important in the context of Indonesian bankruptcy proceedings where creditor ranking is crucial.
About the Deed Of Subordination
A Deed of Subordination is a legal agreement that establishes the payment hierarchy between different creditors of the same debtor under Indonesian law. This document ensures that certain creditors (subordinated creditors) agree to receive payment only after other creditors (senior creditors) have been fully satisfied, providing essential clarity in complex financing structures.
When do you need this document?
You need a Deed of Subordination when your company is involved in multiple financing arrangements with different creditors who require clear payment priorities. This commonly occurs during corporate restructuring where existing debt needs to be reorganized, in project financing where various lenders participate at different levels, or when introducing new senior debt alongside existing facilities. The document is also essential when shareholders or related companies provide subordinated loans that should rank below external commercial debt. In merger and acquisition transactions, subordination deeds help structure the debt hierarchy to satisfy both existing and new creditors' requirements.
Key legal considerations
Under Indonesian law, subordination agreements must be carefully structured to ensure enforceability and effectiveness. The deed should clearly define the scope of subordinated debt and specify the conditions under which subordination applies, including payment restrictions and turnover obligations. Key provisions include standstill clauses preventing subordinated creditors from demanding payment during specified periods, turnover provisions requiring subordinated creditors to pay over any amounts received in breach of the subordination, and enforcement restrictions limiting subordinated creditors' rights to take action against the debtor. The agreement must also address how subordination operates during insolvency proceedings, ensuring compliance with Indonesian bankruptcy law ranking principles. Consider including provisions for modification consent requirements and the treatment of guarantees and security interests related to subordinated debt.
Legal requirements in Indonesia
Indonesian subordination deeds must comply with the Indonesian Civil Code (Kitab Undang-undang Hukum Perdata), particularly Articles 1233-1456 governing agreements and obligations. For corporate parties, compliance with Law No. 40 of 2007 on Limited Liability Companies is required, including obtaining proper corporate authority and board resolutions. The deed must consider Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations, which governs how subordination is treated in bankruptcy proceedings and creditor rankings. When involving secured creditors, Law No. 42 of 1999 on Fiduciary Security may apply. The document should be executed with proper legal formalities, and for certain regulated entities, OJK approval may be required. Consider notarization requirements and ensure all parties have proper authority to enter into the subordination arrangement under Indonesian corporate law.
GOVERNING LAW
Applicable law
This Deed Of Subordination is drafted to comply with Indonesia law. Key legislation includes:
Law No. 40 of 2007 on Limited Liability Companies: Governs corporate actions and debt arrangements when the subordination involves corporate entities, including requirements for corporate approvals and authority.
Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations: Crucial for understanding how subordination agreements are treated in bankruptcy proceedings and their effectiveness in creditor rankings.
Law No. 42 of 1999 on Fiduciary Security: Relevant when the subordination agreement involves secured creditors and the treatment of security interests.
Law No. 10 of 1998 on Banking: Provides regulatory framework for banking institutions involved in subordination arrangements, particularly regarding loan structures and creditor rights.
OJK Regulation No. 32/POJK.03/2018: Financial Services Authority regulation governing debt instruments and subordinated debt in financial institutions.
Law No. 24 of 2004 on Deposit Insurance Corporation (LPS): Relevant for understanding the treatment of subordinated debts in the context of bank resolution and deposit insurance.
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