Subordination Agreement German

In its March judgment this year, LG Dusseldorf ruled that the inclusion of a subordination agreement on the terms of sale, which contains conflicting provisions on the depth of rank, is contrary to the transparency requirement of Article 307, paragraph 1, second sentence, of the BGB and is therefore null and void. In this case, the interpretation of two subordination clauses yielded different results. As a result, the Tribunal found that the contractor could not easily recognize the rights conferred on him or her with respect to other creditors. However, the Tribunal did not in principle rule out the inclusion of a subordination agreement on the terms and conditions of sale. The tax treatment of subordinated debts is also an important issue, which means that such a right is not depreciated, resulting in taxable income. It is therefore desirable for the Bundessteuergericht to follow the decision of the Federal Court of Justice and accept the legal requirements for qualified subordination agreements, in order to obtain the respective tax effects. With regard to the existing subordination agreement, it is advisable to re-examine these agreements in light of the current decision. This is especially important when the debtor is experiencing financial difficulties. Interest payments on loan contracts are subject to German corporate tax if the lender is a tax resident in Germany, which, with the solidarity supplement, is 15.825 percent. In addition, the business tax levied by the municipalities and the rate set by the municipalities (approximately 7 to 18%) apply.

Although the Federal Court of Justice upheld in a 2014 judgment the validity of a debt sub-order included in the terms and conditions of sale, the decisive reasons for its decision cannot be generalized. In the 2015 framework decision that we are debating here, the Federal Court of Justice left this issue open. Following a decision of the Bundesgerichtshof, a security contract may be void for unauthorized breach if a creditor is aware of the debtor`s imperfect financial situation and considers that the debtor can only grant guarantees if he does not respect the vital interests of his other counterparties. The German insolvency law refers to subordination agreements.

This entry was posted in Uncategorized. Bookmark the permalink.