An intercreditor agreement is a significant legal document that governs the relationship between two or more creditors who have lent money to the same borrower. This agreement is essential in cases of insolvency or default, as it sets out the rights and obligations of each creditor in relation to their respective claims on the borrower`s assets.
To ensure that the intercreditor agreement covers all necessary aspects and protects the interests of all parties involved, it`s important to have a comprehensive checklist to follow. Below are some of the essential items that should be included:
1. Definitions: Define all the relevant parties (creditors, borrowers, guarantors, etc.) and terms used in the agreement to avoid any potential confusion.
2. Ranking of Security: Clearly outline the priority of each creditor`s security interests over the borrower`s assets in the event of insolvency or default. This should include a waterfall mechanism for the distribution of proceeds from the sale of assets.
3. Voting and Decision-Making Rights: Specify how decisions will be made and voting rights will be allocated between the creditors, as well as any minority protection measures.
4. Payment Waterfall: Define the order in which payments will be made to the creditors and the borrower, taking into account any seniority or subordination of the claims.
5. Standstill Provisions: Include provisions for standstill periods, which prevent one creditor from taking enforcement action against a borrower during a specified period of time to allow for negotiations and restructuring.
6. Events of Default: Enumerate the events that constitute a default by the borrower, and the corresponding rights and remedies available to the creditors.
7. Enforcement: Set out the process for enforcement of the security interests and the allocation of enforcement proceeds.
8. Dispute Resolution: Include a dispute resolution mechanism, which could be through negotiation, mediation, or arbitration, to resolve any disputes that may arise.
9. Governing Law and Jurisdiction: Specify the law governing the agreement and the jurisdiction in which any disputes will be resolved.
10. Termination: Define the circumstances under which the agreement can be terminated and the procedure for termination.
In conclusion, the intercreditor agreement checklist is an essential tool for ensuring that the legal document covers all relevant aspects and protects the interests of all parties involved. By following the above checklist, you can ensure that your intercreditor agreement is comprehensive and effective, providing peace of mind to all parties involved.