What should a Debt Subordination Agreement include under Thai law?

1. Definitions and Interpretation
2. Subordination
3. Permitted Payments
4. Undertakings
5. Turnover of Amounts Received
6. Insolvency of the Debtor
7. Debtor's Acknowledgment
8. Senior Creditor's Rights and Duties
9. Duration and Reinstatement
10. Warranties
11. Notices
12. Governing Law and Disputes
13. General

• It postpones the Subordinated Debt: the Debtor and the Subordinated Creditor agree that it does not fall due, except for permitted payments, until the Senior Debt is repaid (Clause 2.2). It does not cancel or reduce the Subordinated Debt (Clause 2.4).
• It binds only the three Parties. In a bankruptcy, reorganisation or liquidation of the Debtor, the law decides the order of payment and the preferential rights of other creditors. The Senior Creditor's protection comes from the Subordinated Creditor's promise to file its claim and pass on what it receives (Clauses 5 and 6).
• No payment of the Subordinated Debt may be made before the Senior Debt is repaid without the Senior Creditor's written consent (Clause 3.1). Ask for that consent in writing before any payment, even a small one.- Only scheduled interest up to …% per year may be paid, and only while there is no notified senior default (Clause 3.1). Before each payment, the Debtor should check that no default notice has been received.- The scheduled payments in Schedule 1 may be made on their dates, but only while there is no notified senior default (Clause 3.1). Make sure Schedule 1 states the schedule exactly.

• Because payment of the Subordinated Debt is postponed, the Subordinated Creditor cannot enforce it during the postponement. The Debtor's written acknowledgment of the Subordinated Debt in Clause 7.1 interrupts the limitation period under Thai law, and a new period starts from the acknowledgment.
• Thai law does not allow the parties to extend a limitation period by agreement. When the Senior Discharge Date arrives, the Subordinated Creditor should promptly demand payment or obtain a new written acknowledgment of debt from the Debtor. Ask the Senior Creditor for the written confirmation in Clause 8.3.

• Interest on the Subordinated Debt must not exceed 15% per year if it is a loan, and it accrues as simple interest only (Clause 2.3). Interest on interest is allowed only in the limited cases the Civil and Commercial Code permits.
• This Agreement is not an instrument listed in the Stamp Duty Schedule. Each loan agreement for the Subordinated Debt must carry its own stamp duty as a loan (1 THB for every 2,000 THB or part, up to 10,000 THB), otherwise it cannot be used as evidence in a Thai civil court until the duty and surcharge are paid.
• A company that borrows from a shareholder or director should record the loan and this Agreement in its board minutes and accounts. Interest paid to a lender abroad may be subject to Thai withholding tax; ask an accountant before the first payment.
• Keep the signed Agreement with the Senior Facility and the loan documents for the Subordinated Debt. A Thai court will need a certified Thai translation of any English document you rely on.

Compiled from the notes that accompany the English contract templates on this site, published by Phuwara Krobtaku (ภูวรา ครอบตะคุ), Thai attorney-at-law, licence no. 477/2558. The short answer and summary at the top of this page are put together by the site from the template's clause headings and notes. Statutes are quoted only in the official Thai text: Thai is the only official language of Thai legislation, and an unofficial translation can mislead. Article registry OKC-735DB6. If you reuse this content, please credit the author and link to the original.