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A Deed of Subordination of Directors Loan is commonly used in Hong Kong when a company has both director loans and external financing arrangements. This document becomes necessary when senior lenders require assurance that any loans provided by directors will be subordinated to their debt facilities. The deed formally establishes the ranking of debts, specifies when payments on director loans can be made, and includes mechanisms for preserving the subordination arrangement. It's particularly important in scenarios where a company is seeking new financing or restructuring existing debt facilities. The document must comply with Hong Kong legal requirements for deeds and corporate governance, including proper execution formalities and registration requirements where applicable. Directors often provide loans to their companies for working capital or growth purposes, but senior lenders typically require these to be formally subordinated to protect their interests.

1. Parties: Identifies all parties to the deed including the Company, the Director(s) providing the loan, and any Senior Creditors

2. Background: Sets out the context of the deed, including details of the director's loan and senior debt, and the purpose of subordination

3. Definitions and Interpretation: Defines key terms used throughout the deed and establishes interpretation principles

4. Subordination: Core section establishing the subordination of the director's loan to the senior debt

5. Undertakings by the Director: Director's commitments regarding the subordinated debt, including restrictions on demanding or receiving payment

6. Permitted Payments: Specifies circumstances under which payments on the subordinated debt may be made

7. Turn-over of Receipts: Provisions requiring the director to pay to senior creditors any amounts received in breach of the deed

8. Duration and Release: Specifies how long the subordination remains in effect and conditions for release

9. Further Assurance: Obligations to execute further documents or take additional actions if needed

10. Assignments and Transfers: Restrictions on transferring rights or obligations under the deed

11. Notices: Procedures for giving formal notices under the deed

12. Governing Law and Jurisdiction: Specifies Hong Kong law as governing law and jurisdiction for disputes

13. Execution: Formal execution blocks meeting Hong Kong deed requirements