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Loan Subordination Agreement for United Arab Emirates

Loan Subordination Agreement Template for United Arab Emirates

A comprehensive legal document governed by UAE law that establishes and regulates the priority of different debt obligations between multiple creditors. This agreement sets out the terms under which junior (subordinated) debt is contractually subordinated to senior debt, establishing payment hierarchies, enforcement rights, and creditor priorities. The document incorporates specific provisions compliant with UAE Federal Laws, including the Civil Code and Commercial Code, and can be adapted for both conventional and Islamic finance structures. It includes provisions for payment restrictions, turnover obligations, and creditor rights enforcement, while considering UAE-specific bankruptcy and security regulations.

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What is a Loan Subordination Agreement?

The Loan Subordination Agreement Template is a crucial document in UAE financial transactions where multiple creditors are involved in lending to the same borrower. This template is designed to comply with UAE Federal Laws and regulations, including the Civil Code (Federal Law No. 5 of 1985) and Commercial Code (Federal Law No. 18 of 1993). It is typically used in scenarios where there is a need to establish a clear hierarchy of debt repayment, such as in project financing, corporate restructuring, or complex lending arrangements. The agreement details the subordination mechanics, intercreditor relationships, payment restrictions, and enforcement rights, while considering both conventional and Islamic finance principles common in UAE transactions. The template can be customized for various business sectors and can incorporate specific provisions for DIFC jurisdiction if required.

What sections should be included in a Loan Subordination Agreement?

1. Parties: Identification of all parties including Senior Creditor(s), Subordinated Creditor(s), and the Debtor

2. Background: Context of the existing debts and reason for subordination arrangement

3. Definitions and Interpretation: Definitions of key terms including Senior Debt, Subordinated Debt, Enforcement Action, and Payment Terms

4. Subordination: Core provisions establishing the subordination of the junior debt to the senior debt

5. Restrictions on Subordinated Debt: Limitations on payments, enforcement actions, and modifications of subordinated debt

6. Turnover of Receipts: Obligations to turn over any payments received in breach of the subordination arrangements

7. Senior Creditor Rights: Rights of the senior creditor including enforcement and modification rights

8. Representations and Warranties: Key representations by all parties regarding authority, enforceability, and existing obligations

9. Permitted Payments: Circumstances under which payments on subordinated debt are permitted

10. Duration and Termination: Term of the subordination arrangement and conditions for termination

11. Governing Law and Jurisdiction: Specification of UAE law as governing law and jurisdiction for disputes

What sections are optional to include in a Loan Subordination Agreement?

1. Islamic Finance Compliance: Required when any of the debt facilities are Shariah-compliant, setting out specific provisions for Islamic finance arrangements

2. Multiple Creditor Provisions: Required when there are multiple subordinated creditors, establishing their respective rights and rankings

3. Security Arrangements: Required when the subordination involves secured debt, addressing the priority of security interests

4. Intercreditor Provisions: Required for complex arrangements involving multiple creditor classes and their relationships

5. Payment Blockage Provisions: Optional sophisticated mechanisms for blocking payments on subordinated debt upon specific trigger events

6. Amendment Provisions: Required for complex arrangements involving multiple parties, setting out specific procedures for modifications

7. DIFC Jurisdiction Provisions: Required if any party is based in or the agreement involves the Dubai International Financial Centre

What schedules should be included in a Loan Subordination Agreement?

1. Schedule 1 - Details of Senior Debt: Comprehensive list and details of all senior debt facilities

2. Schedule 2 - Details of Subordinated Debt: Comprehensive list and details of all subordinated debt facilities

3. Schedule 3 - Form of Accession Deed: Standard form for additional creditors to accede to the agreement

4. Schedule 4 - Payment Waterfall: Detailed payment priority waterfall in enforcement scenarios

5. Schedule 5 - Notice Requirements: Forms of notices and communication requirements between parties

6. Appendix A - Security Documents: List and copies of relevant security documents if applicable

7. Appendix B - Existing Indebtedness: Complete overview of borrower's existing debt arrangements

Authors

Alex Denne

Head of Growth (Open Source Law) @ Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Publisher

Ƶ

Document Type

Loan Agreement

Sector

Banking

Cost

Free to use
Relevant legal definitions


















































Clauses




































Relevant Industries

Banking and Financial Services

Real Estate and Construction

Infrastructure Development

Energy and Resources

Commercial and Industrial

Healthcare

Hospitality and Tourism

Retail and Consumer Goods

Technology and Telecommunications

Transportation and Logistics

Relevant Teams

Legal

Finance

Treasury

Risk Management

Compliance

Corporate Finance

Project Finance

Islamic Finance

Credit Risk

Investment Banking

Relevant Roles

Chief Financial Officer

Finance Director

Legal Counsel

Corporate Lawyer

Banking and Finance Lawyer

Treasury Manager

Financial Controller

Risk Manager

Compliance Officer

Investment Manager

Debt Restructuring Specialist

Islamic Finance Specialist

Corporate Finance Manager

Project Finance Manager

Industries






Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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