A subordination agreement going concern is a legal document that outlines the priority of different creditors when a borrower defaults on their debts. This type of agreement is commonly used in business transactions to ensure that a lender`s claim to a borrower`s assets will be honored in the event of bankruptcy or liquidation.
In general, a subordination agreement going concern is structured to protect the interests of lenders who have provided funding to a business. It typically sets out rules for how different creditors will be paid back in the event that the business is unable to meet its financial obligations.
Under a subordination agreement going concern, the lender with the highest priority is typically the one who has provided the most funding to the business. This lender is often referred to as the “senior lender.” Other lenders who have provided funding to the business are typically referred to as “junior lenders.”
If the business defaults on its debts, the senior lender will be paid back first, before any other creditors receive payment. The junior lenders will only receive payment after the senior lender has been fully repaid.
While a subordination agreement going concern can be complex, it is typically a necessary component of business transactions involving multiple creditors. By setting clear rules for how creditors will be paid back in the event of bankruptcy or liquidation, this type of agreement helps to protect the interests of all parties involved.
Overall, a subordination agreement going concern is an important legal document that can help to ensure that lenders are fairly compensated when a business is unable to meet its financial obligations. If you are involved in a business transaction that involves multiple creditors, it is important to work with an experienced attorney to draft a subordination agreement going concern that protects your interests and meets all legal requirements.
