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Subordination agreements, bankruptcy and the PPSA

  • Author(s) / Creator(s)
  • Introduction: Working out a satisfactory legal analysis of subordination agreements is a slippery business. A subordination agreement involves a contractual modification of the legal rules that ordinarily govern the order of repayment or distribution to creditors or the priority ranking of their security interests. Because these are matters that the parties are free to negotiate, it becomes a fool's errand to attempt to make universal statements about the legal nature of these arrangements.' While I will argue that the contractual language that is typically used in Canada to subordinate or postpone one security interest to another does not involve an assignment of the secured creditor's claim to the other creditor, this does not mean that the parties cannot through the inclusion of appropriate contractual language create such an assignment. The resolution of the matter will, therefore, ultimately depend upon the construction of the particular contract in each case. Problems are compounded because many subordination agreements fail to clearly specify the type of legal rights that are being created.

  • Date created
    2010
  • Subjects / Keywords
  • Type of Item
    Article (Published)
  • DOI
    https://doi.org/10.7939/R3GF0N98F
  • License
    © 2010 Canadian Business Law Journal. This article has been reproduced with the permission of the CBLJ.
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  • Citation for previous publication
    • Wood, R. J. (2010). Subordination agreements, bankruptcy and the PPSA. Canadian Business Law Journal, 49(1), 66-98. Retrieved from http://heinonline.org/HOL/Page?handle=hein.journals/canadbus49&div=6&g_sent=1&collection=journals
  • Link to related item
    http://heinonline.org/HOL/Page?handle=hein.journals/canadbus49&div=6&g_sent=1&collection=journals