What is a deed of postponement between creditors?
Creditors are usually classed as senior or junior, senior debt is more secure and takes priority. Junior debt carries more risk and is repaid later.
In practice, this means that if a company becomes insolvent, senior debts are typically repaid before junior debts.
How Multiple Creditors Manage Their Interests
Where a company has debts owed to more than one lender, creditors may enter into inter-creditor arrangements to regulate their respective positions.
One of the key ways this is done is through a deed of postponement.
A deed of postponement allows creditors to formally agree how their competing interests will be handled, particularly in the event of a dispute or enforcement action.
It also establishes how proceeds from the enforcement of security will be distributed.
What Does a Deed of Postponement Do?
Typically, a deed of postponement sets out that:
Proceeds from the enforcement of security will first be used to repay the senior debt
Any remaining funds will then be applied toward the junior debt.
Before finalising the agreement, creditors will often negotiate whether the senior creditor is entitled to full repayment or repayment up to a specified amount before the junior creditor receives any funds.
Who Drafts and Negotiates the Agreement?
In most cases, the deed of postponement is drafted by the senior creditor’s solicitors, the terms are then negotiated with the junior creditor’s legal representatives.
The debtor is usually included as a party to the agreement, even though they do not take part in the negotiations.
Why the Debtor Still Needs to Be Involved
The debtor should still be aware of the agreement, even if they are not involved in the negotiations. This matters for:
The ranking of creditor security
Their obligations under each loan agreement
This helps the debtor follow the terms and avoid any conflict with the agreed order of priority.
Key Protections Within a Deed of Postponement
A good deed of postponement includes terms to stop the debtor from undermining the agreed security structure.
This is important if different loan agreements have conflicting terms, these protections help keep the agreed priority in place.
“Can the Agreement Be Changed?”
Creditors can usually change the terms of a deed of postponement without the debtor’s consent.
Talk to Orwins for legal guidance on a deed of Postponement Between Creditors
A deed of postponement is helpful when there are several creditors. If you want to clarify who is paid first, reduce disputes, and set out how money is shared, speak to our solicitors at Orwins.
