Intercompany Subordination Agreement Template for Canada

The Intercompany Subordination Agreement is essential for corporate groups operating in Canada that maintain multiple internal lending arrangements. This document becomes necessary when a corporate group needs to establish a clear hierarchy of payment rights between different intercompany debts, particularly when external financing requires certain intercompany debts to be subordinated to others. It's commonly used in conjunction with external financing arrangements, corporate restructurings, or as part of group treasury management policies. The agreement must comply with Canadian federal laws, including the Bankruptcy and Insolvency Act, and relevant provincial legislation governing security interests and corporate affairs. It typically includes detailed provisions on payment restrictions, enforcement rights, and procedures for handling payment violations, all tailored to the Canadian legal context.

1. Parties: Identifies all relevant group companies, including the senior creditor(s), subordinated creditor(s), and the debtor company(ies)

2. Background: Explains the context of the intercompany debt arrangements and the purpose of the subordination agreement

3. Definitions and Interpretation: Defines key terms including Senior Debt, Subordinated Debt, Enforcement Action, and Payment Blockage

4. Subordination: Core section establishing the subordination of specified intercompany debt to senior debt

5. Undertakings by Subordinated Creditors: Sets out specific promises by subordinated creditors regarding their debt and enforcement rights

6. Payment Restrictions: Details when payments on subordinated debt are permitted or prohibited

7. Turnover of Proceeds: Mechanisms for handling any payments received in violation of the subordination provisions

8. Enforcement Restrictions: Limitations on subordinated creditors' rights to take enforcement action

9. Application of Proceeds: Order of application of any recoveries or payments

10. Power of Attorney: Appointment of senior creditor as attorney to enforce subordination rights

11. Changes to Parties: Procedures for adding or removing parties to the agreement

12. Notices: Communication requirements and contact details

13. General Provisions: Standard boilerplate provisions including amendments, waivers, and governing law