---
title: "Deed of subordination (shareholder or related-party loans behind a senior lender)"
url: "https://ailawframework.com/precedents/banking-and-finance/deed-of-subordination"
type: "precedent"
site: "AI Law Framework"
id: "a3-deed-of-subordination"
area_id: "A3"
kind: "deed"
ai_level: "yellow"
version: 1
task_ids: ["A3-T1-R11"]
law_stated_as_at: "2026-10-18"
---

# 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…

Canonical page: https://ailawframework.com/precedents/banking-and-finance/deed-of-subordination  
Law stated as at: 2026-10-18

Site index for agents: https://ailawframework.com/llms.txt

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.

## Key facts

- Kind: Deed. A deed that must be executed as a deed.
- Practice area: [Banking & Finance](https://ailawframework.com/precedents/banking-and-finance.md)
- Jurisdictions: Australia
- AI level: Yellow. AI can help in set ways. A lawyer checks specific points before use.
- Law stated as at: 2026-10-18
- Status: Maintained. Checked on 2026-10-18 against the 2 authorities it cites, for Australia.

## 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.

## Used for these tasks

- [Draft the intercreditor or subordination deed](https://ailawframework.com/practice/banking-and-finance.md#A3-T1-R11)

## 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

## Authorities

- [Corporations Act 2001 (Cth) s 563C (a debt subordination is not unlawful or unenforceable in a winding up except so far as it would disadvantage a creditor not party to it; definition of debt subordination)](https://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s563c.html)
- [Corporations Act 2001 (Cth) s 127 (execution of documents, including deeds, by a company)](https://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s127.html)

## Full text and drafting notes

The full text and the drafting notes are not part of this public page. Signed-in firm accounts can read them at https://ailawframework.com/precedents/banking-and-finance/deed-of-subordination and through the signed-in MCP connector https://ailawframework.com/mcp/firm.

*Practice guidance for planning and review. Confirm current primary sources and the requirements of the actual matter. This is general information, not legal advice.*