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Subordination Agreement In Auditors

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Subordination contracts are the most common in the field of mortgages. When an individual borrows a second mortgage, that second mortgage has a lower priority than the first mortgage, but those priorities may be disrupted by refinancing the original loan. Where a subordination agreement is concluded only because of the interest issue, section 8F of the Income Tax Act does not apply (i.e., rescheduling rules do not apply). This is only the case if the company obtains certification by a person registered as an accountant within the meaning of the Audit Profession Act. In such a certificate, it must be a problem with the subordination agreement. According to the 2016 statement, “it is expected that the certificate of subordination of the debt of persons bound by the legal auditor of accounts will be established in a separate letter for the purposes of this exclusion.” The fundamental premise of inter-creditor agreements, including mezzanine and priority loans, is that mezzanine debt is subordinated to priority debt in the right to pay. As a general rule, the borrower is prevented from paying mezzanine debt and mezzanine creditors are prohibited from taking corrective action against the borrower. The interbank agreement may also contain a provision by which the mezzanine creditor must, under the inter-credit agreement, transfer to the agent, in accordance with the interbank agreement, all the sums it receives, for the purpose of submitting the application in the event of payment water. Since it is generally the responsibility of the agent to receive payments from the borrower and distribute them to the parties in accordance with the inter-credit agreement, the applicability of such subordination provisions in the Swiss insolvency procedure (i.e.

their automatic consideration by liquidators) is limited. The missing element is relevant when intercompany loans are subject to the obligation to guarantee, in a second separate financing transaction, the absence of an inter-credit agreement between subordinated intragroup companies and priority lenders in the second financing transaction. A subordination agreement recognizes that the requirement or interest of one party is greater than that of another party if the borrower`s assets must be liquidated to repay the debt. The question is whether a judicial administrator should also consider a subordination agreement that automatically benefits only certain creditors (relative subordination). Some authors and liquidators argue that a relatively secondary debt should be admitted into the debt plan as a normal debt and dividends paid to the subordinated creditor. However, according to the prevailing opinion, relative subordination should be imposed by the liquidator as well as the subordination of Article 725 II CO. In this case, the dividend paid to the subordinated creditor would not be distributed to the subordinated creditor, but directly to the priority creditor (in addition to the priority creditor`s own dividend) until the principal debt is fully paid. After the principal creditor`s payment, the balance of the subordinated creditor`s dividend would be paid to the subordinate`s own debt. To date, the Swiss courts have not had the opportunity to consider whether a liquidator is required to take into account an agreement providing for subordination to the benefit of certain creditors.

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