Equity Contribution And Subordination Agreement
September 19, 2021
When identifying competing creditors in the fight against priority, the creditor classifies its debt according to another creditor, the latter being designated as a subordinate creditor, which is usually the sponsor. The one whose claim is prioritized is designated as a priority creditor since they lend for the project as banks or financial institutions. This is why we can identify the parties to the subordination by drawing a scheme between three key players such as a priority creditor, a subordinated creditor and a debtor as a project company, which is generally referred to as a borrower in many project finance transactions. This junior-senior interaction enters the plan when the problem is due to the indebtedness of these creditors as a rancid debt and a priority debt. Although we have already mentioned some advantages of subordination under the hierarchy of claims shortly, it is worth mentioning them in a separate part of this article. It should be stressed that the advantages of subsity in the case of project financing are weighed against self-consumption. First, the debtor is not entitled to deduct the dividends to be paid from his gross income, while the interest of a subordinate remains deductible and is not subject to withholding tax. In addition, the project company is not responsible for the issuance of loan capital; On the other hand, capital duty could be reduced to liability that goes beyond the debtor. With regard to the payment of interest on a debt, the debtor is not required to make a profit as if he had to pay dividends. As a result of such proceedings, the assignor becomes the creditor of the contractual relationship between the assignee and the debtor. In addition, the debtor guarantees the debtor`s ability to settle this liability in relation to the zessiona. The concept of subordination in project financing is in practice put forward in practice, because the sponsors are at the same time the debtor`s shareholders. In the event that the parties have agreed to enter into a turnover trust, all claims collected by the younger creditor belong to the assets of the priority creditor. Such a capital regime is valid until the priority creditor receives full payment of the priority debt.
It goes without saying that after the focus on the priority creditor`s property rights, claims, such as the payment of premiums or interest on outstanding debt, will remain in trust at the disposal of the outstanding creditor. Since such subordination entitles the priority creditor with a right of separatist protection, it is in practice the most preferred method. This method can also be obtained through a contractual agreement, but it is often arranged on trust. . .