Commentary

58 Contractual or contingent debt subordinations

BANKING vol 4(1)
| Commentary

58 Contractual or contingent debt subordinations

| Commentary

58 Contractual or contingent debt subordinations

In this subordination, the junior creditor acknowledges that so long as any senior debt is outstanding the debt owed to the junior creditor will not be payable. It is only when the senior debt has been paid in full that the debtor is permitted to make payments on the junior debt. There is no problem with this arrangement while the debtor is solvent but immediately the debtor becomes insolvent it runs across the mandatory insolvency rule that unsecured debts are to be paid pari passu. The debts are ‘unsecured’ either because they were always

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