Key Questions On Subordination

There are different forms and treatments of subordination agreements in Swiss insolvency. This article is inspired by the authors' experience representing the security agent of $1.75 billion bond issue of a Swiss based oil refinery group

When a group of lenders extends credit to the same borrower, it usually enters into an intercreditor agreement, a key component of which is a subordination provision setting out the ranking and priority of repayment rights. In addition, the subordination of intragroup funding, ie loan agreements between group companies, to the lenders' claims is frequently seen in financing transactions. In Switzerland, subordination agreements also serve as an instrument under company law (article 725 II Swiss Code of Obligations (CO)) that enables over-indebted companies to continue doing business. The subordination clauses as seen in the intercreditor agreements or other debt financing structures on the one hand (Nachrangigkeit) and subordination