The Deed of Subordination is a crucial document in Pakistani financial transactions where multiple creditors are involved in financing the same debtor. It is commonly used in scenarios such as corporate refinancing, acquisition financing, or project finance where there is a need to establish a clear hierarchy of debt repayment. The deed specifically details how junior (subordinated) debt is ranked below senior debt, including mechanisms for payment priorities, restrictions on subordinated creditors' enforcement rights, and obligations to turn over any payments received in breach of the subordination arrangements. Under Pakistani law, particular attention must be paid to registration requirements, stamp duty obligations, and compliance with banking regulations when financial institutions are involved. The document becomes especially relevant during financial distress situations, providing clarity on creditors' rights and helping to prevent disputes over payment priorities.
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1. Parties: Identifies all parties to the deed including the debtor, senior creditor(s), and subordinated creditor(s)
2. Background: Recitals explaining the existing debt arrangements and the purpose of the subordination
3. Definitions and Interpretation: Defines key terms used throughout the deed, including Senior Debt, Subordinated Debt, Enforcement Action, etc.
4. Subordination: Core section establishing the subordination of the junior debt to the senior debt
5. Undertakings by Subordinated Creditor: Specific promises and restrictions on the subordinated creditor's actions
6. Payments and Treatment of Subordinated Debt: Rules governing payments on the subordinated debt and treatment of any received amounts
7. Turnover of Receipts: Provisions requiring subordinated creditors to turn over any payments received in breach of the deed
8. Protection of Subordination: Mechanisms to ensure the subordination remains effective
9. Power of Attorney: Appointment of senior creditor as attorney to enforce subordination provisions
10. Duration and Release: Term of the subordination and conditions for release
11. Representations and Warranties: Standard declarations by all parties regarding their capacity and authority
12. Governing Law and Jurisdiction: Specifies Pakistani law as governing law and relevant jurisdiction for disputes
1. Security Arrangements: Required when the subordination involves secured debts, detailing the priority of security interests
2. Permitted Payments: Include when certain payments to subordinated creditors are allowed under specific conditions
3. Additional Creditor Accession: Needed when new creditors may join the subordination arrangement in the future
4. Amendments and Waivers: Include for complex arrangements where flexibility to modify terms may be needed
5. Information Rights: Include when subordinated creditors are granted specific information rights
6. Buy-out Rights: Include when subordinated creditors have rights to buy out senior debt under certain circumstances
7. Regulatory Compliance: Required when parties include regulated entities or when specific regulatory requirements apply
1. Details of Senior Debt: Schedule listing all senior debt facilities, amounts, and key terms
2. Details of Subordinated Debt: Schedule listing all subordinated debt facilities, amounts, and key terms
3. Form of Accession Deed: Standard form for new creditors to accede to the deed
4. Notice Details: Contact details and notice requirements for all parties
5. Security Documents: List of relevant security documents and their priority
6. Existing Defaults: If applicable, schedule of any existing defaults or potential defaults
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