An agreement on the subordination of a claim does not constitute a waiver. The debt company must continue to take subordinated debts into account as debts and disclose the subordinated loan separately in the annual accounts. The subordination itself does not constitute a restructuring, as the financial situation of the company remains unchanged. However, subordination agreements increase the chances of a struggling company recovering financially by allowing more time to take restructuring action. In practice, subordinated loans under section 725 II CO are often used for many years as de facto capital substitutes, although this is not the intent of the legislation. It should be noted that the Bundesgerichtshof has decided that subordinate claims must be taken into account when calculating damages in the decision on a director`s liability rights. Austrian judicial practice uses a wide range of conditions (2) to describe contractual agreements between a creditor and its debtor, in which the creditor has subordinated his claims so that in the event of insolvency or liquidation of the debtor, the claims must be settled only if all non-subordinated creditors are satisfied. (3) The effects of these so-called “simple” subordination agreements are essentially limited to changing the priority order of creditors in insolvency proceedings. The Federal Court of Justice answers the question of the legal nature of subordination in the sense that it is a debt modification contract that does not alter the existence of the debt itself, but its rank. The agreement between the parties is amended so that the creditor can only demand payment of his debt if there are sufficient assets free of the debtor.
However, if the debtor is required to request insolvency proceedings, the creditor is not entitled to request payment. (7) See also the European Court of Justice (ECJ) of 30 April 2014, C-26/13 K`sler and Késlerné R`bai and the ECJ of 20 September 2017, C-186/16 Andriciuc. With regard to loan contracts, the ECJ confirmed that the “main purpose of the contract” within the meaning of Article 4, paragraph 2 of EU Directive 93/13, must be interpreted as the conditions that define and identify the essential obligations of the Treaty.