Commentary

61 The debtor’s insolvency

BANKING vol 4(1)
| Commentary

61 The debtor’s insolvency

| Commentary

61 The debtor’s insolvency

Having set up the subordination arrangements their effectiveness has to be considered in two principal circumstances. First the debtor’s insolvency and secondly the junior creditor’s insolvency.

The question which has to be answered is whether a subordination arrangement relating to unsecured debt is valid in the debtor’s bankruptcy bearing in mind the mandatory pari passu distribution provisions of the Insolvency Act 1986. The mischief which the statute is trying to deal with is to prevent the debtor, at the wish of a creditor, preferring that creditor to other general creditors. In a subordination, the agreement is not

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