Deed · Banking & Finance
Deed of subordination (shareholder or related-party loans behind a senior lender)
A three-party deed that postpones a shareholder or related-party loan to a senior facility: no payments except permitted payments, turnover of amounts received, no enforcement or security without consent, voting and proof in insolvency, and undertakings by the borrower.
- Kind
- Deed. A deed that must be executed as a deed.
- Where it applies
- Australia
- AI use
- Yellow AI can help in set ways. A lawyer checks specific points before use.
- Law stated as at
- 18 October 2026
- Status
- Maintained. Checked on 18 October 2026 against the 2 authorities it cites, for Australia.
- Version
- 1
- Source
- Written for this library
When to use it
Use when a senior lender requires shareholder, director or related-company loans to rank behind its facility, often as a condition precedent. For two secured lenders sharing security, use a priority or intercreditor deed instead.
How AI may be used
AI may draft the deed from the term sheet and the facility agreement and list the loans to be subordinated, but a lawyer settles the permitted payments, the insolvency provisions and whether any security held by the subordinated creditor must be released or postponed.
AI may
- Fill the parties, facility details and permitted payments into the approved deed from the term sheet
- Extract every related-party loan, its balance and any security for it from the financial statements, loan agreements and PPSR search into Schedule 1
- Check that defined terms and events of default match the senior facility agreement and list mismatches
AI must not
- Must not decide which payments are permitted or whether a subordinated creditor’s security should be released, postponed or kept
- Must not omit a related-party loan because it is undocumented; list it for the lawyer
- Must not process the client’s financial statements in a tool that retains or trains on them
The lawyer checks
- Schedule 1 captures every subordinated loan, including undocumented loans and future advances
- Permitted payments are consistent with the senior facility’s distribution and financial covenants
- The turnover trust and proof-of-debt provisions work in a liquidation without disadvantaging creditors who are not party (s 563C)
- Any security held by the subordinated creditor is dealt with on the PPSR and in a priority arrangement, and each party executes as a deed
Method: how the Green, Yellow and Red levels are decided. This is guidance for planning, not legal advice.
Read the full text
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More in Banking & Finance
- PPSR security interest registration: official guide with grantor-detail verification step
- General security deed (all present and after-acquired property)
- PPSA amendment demand to remove or amend a PPSR registration (s 178), with escalation steps
- Conditions precedent checklist and satisfaction certificate for a facility agreement
- Payout request letter and deed of release and discharge of security (refinance or repayment)
- Guarantor independent legal advice letter and solicitor's certificate
- Borrower’s waiver and amendment request letter, lender consent letter and covenant compliance certificate
- Clause and customer disclosure for AI-assisted credit decisioning (explanation and human review)
- Prompt template with guardrails: extract the covenant package into a monitoring table
All precedents for Banking & Finance · Tasks and AI use in this area