Use this contract:

• When you have a claim against a Swiss or foreign company, either as a shareholder or as a third-party creditor.
• When the company needs debt restructuring to cover losses and avoid bankruptcy.
• If the debt will not bear interest during the postposition and will not be repaid until the company’s financial situation improves.
• If you wish to downgrade your position after any other creditor in the event of the company’s bankruptcy.

Protect yourself legally as a creditor with the following options: 

• Total or partial postposition of the debt. 
• Clear determination of the effects and restrictions of the postposition. 
• Possibility to lift the postposition up to the amount subordinated by another creditor. 

Safeguard your interests as a company by using the following clauses: 

• Obligation for the assignee to accept the postposition in the event of assignment of the debt. 
• No contractual interest, interest on arrears or reminder fees. 
• Unreserved retention of the company’s counterclaims, prohibiting any set-off.

Subordination agreement

Our subordination agreement template allows you to draft a professional debt subordination agreement to be signed between a creditor and a debtor company to postpone the repayment of a debt. With this sample, it’s possible to suspend payments on debt until the improvement of the business’s financial situation. 

A business uses our subordination agreement example: 

• When a Swiss limited liability company is in a state of over-indebtedness or capital loss (for example: liabilities exceed assets or losses exceed ½ of share capital and legal reserves).
• To prevent the necessity of filing for compulsory bankruptcy procedures and to facilitate the restructuring of its financial situation.
• To retrograde the creditor’s position after all other creditors of the company, by way of subordination.

Key aspects of a subordination agreement 

• A subordination agreement sample is suitable for use by a debtor company concerning third-party creditors, related parties, or shareholders. 
• The document should clearly outline the currency, amount, and interest on the postponed debt, and subordinated amount, as well as include a termination clause. 
• A shareholder creditor typically agrees to subordination at the time of loan issuance or debt declaration. 
• Third-party creditors may choose to enter a subordination agreement under certain circumstances. 

Eight tips on a subordination agreement 

To protect your legal and financial interests as a company, we advise you to choose from the following options of our subordination agreement template: 

• Non-revocable nature of subordination until the financial situation improves. 
• Release from the obligation to deposit financial statements before a bankruptcy judge, as long as the debt remains postponed. 
• Prohibition to compensate the subordinated amount with any existing or future counterclaim. 
• Suspension of any applicable interest until the agreement comes to expiration. 

Our subordination agreement example offers protection and benefits to the creditor as well, for example: 

• Legal title to an acknowledged debt and obligation to repay under terms of subordination. 
• Option to convert the subordinated amount into the share capital of the company, in lieu of repaying the debt. 
• Early release from subordination up to an equivalent amount postponed by any third-party creditor. 
• Accumulation of suspended interest without waiver, until it can be repaid together with the outstanding debt. 

Create a subordination agreement with AdminTech 

With AdminTech’s online document builder and the subordination agreement sample, all you need to do is fill in the required fields with the relevant information to adjust the document to your specific situation. 

A professional debt subordination agreement covers the following information:  

• Parties’ contact details and identification 
• Currency, origin, and amount of debt 
• Accrued interest, penalties, and other fees up to subordination to date 
• Subordinated amount and suspension or waiver of interest 
• Possibility of conversion into the share capital of the company 
• Term of agreement and conditions of release and termination. 

FAQ on a subordination agreement 

When should you draft a subordination agreement?  

Without having the obligation, a subordination agreement template is commonly used when a Swiss debtor company is in one of the following situations: 

• Liabilities of the company exceed its assets (over-indebtedness) 
• Losses exceed ½ of the share capital and legal reserves (loss on capital) 

To avoid filing for bankruptcy in such cases, the parties may choose to subordinate all or part of the outstanding debt.  

What are the effects of subordination on the creditor? 

In either example mentioned above, a subordination agreement would necessarily impose the following restrictions on the creditor: 

• No pursuit or forceful execution of the postponed debt or interest 
• No enforcement of pledges or guarantees 
• No compensation with counterclaims of the debtor company 
• In the event of bankruptcy, priority is given to other creditors. 

However, our template allows the following options for the creditor: 

• Irrevocable waiver of all or part of the subordinated amount 
• Conversion of the debt into the share capital 
• Calculation of interest until the terms of release are fulfilled. 

What are the consequences of subordination on the debtor? 

A subordination of debt agreement often stipulates the following restrictions on the debtor: 

• No repayment of the postponed debt or interest 
• No compensation with counterclaims nor suspension of counterclaims 
• No additional guarantee to the creditor nor additional business interest. 

How can a subordination clause be terminated? 

A subordination agreement of any form comes to an end in the following circumstances: 

• The financial situation of the debtor company is improved and allows repayment of all or part of the subordinated debt 
• A third-party creditor provides a subordination up to an equivalent amount 
• Bankruptcy of the debtor with or without eventual repayment of outstanding sums 
• Conversion into capital or waiver of the subordinated debt. 

In our template, the parties may likewise specify a minimum duration, even if one of the release conditions is met. 

Who may draft a subordination agreement? 

A subordination contract is more commonly used by a shareholder or a company within the group to postpone bankruptcy and ensure the restructuring of their financial situation. Such an act is typically accompanied by the granting of additional funds in the form of a subordinated loan. 

Third-party creditors may likewise subordinate a debt, in particular where their interest in continuing cooperation and keeping the company financially stable is more important than the pursuit of short-term reimbursement. 

What is the difference between subordination and waiver of claim? 

Whereas a waiver is irrevocable and definitive, a subordination is a temporary suspension on payment of the debt, subject to a release condition. 

What are the alternatives to subordination? 

Depending on the circumstances, a shareholder may opt for the following alternatives to subordinating a debt: 

• Waiver and conversion into equity reserves, without compensation of accounting loss 
• Abandonment of debt to cover retained losses 
• Conversion of the subordinated amount into the share capital of the company. 

For a third-party creditor, however, it is possible to waive the debt in return for: 

• A share in the stock of the company (convertible option) 
• Dividend right certificates 
• Recuperation certificate, allowing repayment with or without a bonus once the financial situation improves. 

How can a company ensure a successful subordination operation? 

To ensure a successful subordination of a debt, we recommend the following steps: 

• Verify if the company has sufficient hidden reserves to offset losses. 
• Determine the pool of creditors willing to cooperate and act in mutual interest. 
• Calculate the necessary subordination amount, including by granting an additional shareholder’s loan, if necessary. 
• Evaluate the risks and ongoing concerns of the company, as well as its restructuring strategy. 
• Create and sign the agreement using our subordination agreement template. 

Use this amendment: 

• To confirm a debt that has not been documented, or to make changes to the repayment.
• That the debt arises from a loan or invoice, whether private or commercial, in Swiss francs or foreign currency.
• Whether the debt is interest-free, with simple or compound annual interest, or interest only.
• Whether or not you wish to impose additional guarantees and restrictions on the debtor.
• Whether or not you wish to provide for penalties and enforcement measures in the event of late repayment.

Protect yourself legally as a creditor with the following options: 

• Prohibition on selling significant assets, taking on debt or giving more advantageous security to third-party creditors. 
• Obligation to regularly confirm declarations, disclose financial statements or tax returns, subject to immediate termination. 
• Interest on arrears and reminder charges in the event of late payment, with the debtor obliged to cover any legal costs in the event of enforcement. 

• Immediate termination in the event of a change of control, bankruptcy, or insolvency of the debtor. 
• Cancellation of the instalment plan and demand for immediate repayment in full if an instalment is overdue. 

Safeguard your interests as a debtor by using the following clauses: 

• Flexible calculation of simple interest with the option of a single or regular payment. 
• Option to specify a single interest rate that does not depend on the term of the debt. 
• Option to accumulate compound interest over different periods. 
• Limitation of reminder charges. 

Use this contract: 

• If you have a claim against a Swiss public limited company or limited liability partnership.
• Whether or not you are already a shareholder or partner in the company.
• Whether the claim is in Swiss francs or a foreign currency.
• To convert all or part of the claim into the company’s share capital, which may or may not have to be increased accordingly, with an additional issue.

Protect yourself legally with the following options: 

• Introduction of a condition precedent to conversion to be satisfied by the company or the creditor. 
• Possibility of issuing, selling or buying back and reselling shares to satisfy the creditor. 
• Imposition of a final deadline for everything to be formalised, registered and any necessary authorisations to be obtained, failing which the debt will have to be repaid. 
• Stipulation of restrictions and privileges on the shares, as well as indication of the paid-up amount of the capital in the event of partial payment. 

Use this contract: 

• If you are a shareholder or partner in a Swiss company.
• If you have a claim against the company.
• Whether the claim is in Swiss francs or in a foreign currency.
• To surrender all or part of the claim to the company, without increasing the share capital.
• Whether the contribution is credited to reserves opened to offset losses, or to reserves from capital contributions.

Protect yourself legally with the following options: 

• Introduction of a condition precedent to conversion to be met by the company or creditor. 
• Obligation to book the waived claim to open reserves or contribution reserves, in accordance with the investor instruction. 
• Stipulation of restrictions and privileges on the shares, as well as indication of the paid-up amount of the capital in the event of partial payment. 

Use this document: 

• If you have a claim against a private individual or company.
• Whether the claim originates from any source, in Swiss francs or foreign currency.
• To waive all or part of the claim in favour of the debtor, without consideration.

Protect yourself legally with the following options: 

• Unequivocal statement of the amount of the claim, together with interest, costs and penalties accrued to date. 
• Possibility of waiving all or part of the claim. 
• Imposition of a condition precedent to be met by the creditor or debtor. 

Use this document: 

• To guarantee any debt, in Swiss francs or foreign currency.
• Whether the guarantee covers a definite debt, specific debts or indefinite future debts, up to the overall guarantee limit.
• Whether or not the guarantee is subject to the debtor’s counterclaims and defences.

Use the following options to optimise the warranty conditions: 

• Capping of the total guarantee amount. 
• Additional cover for execution costs, penalties, and interest for late payment, up to the maximum limit. 
• Transferability of the guarantee to any assignee of the debt if assigned by the creditor. 
• Grace period during which the creditor must sue the debtor before the guarantee, and deadline for the validity of the guarantee. 
• Possibility of raising the same exceptions or objections that the debtor could raise against the creditor (dependent guarantee).