Intercreditor agreement
An intercreditor agreement is a contract between two or more lenders to the same borrower that sets out who ranks ahead of whom, who gets paid first, and what each may do on a default. It is the document that lets a bank loan and a vendor take-back sit on the same business.
Most Canadian acquisitions involve more than one source of debt, and every lender wants first claim on the same assets. The intercreditor agreement resolves that by ranking them — the senior lender first, the subordinated lender behind — and by defining what the junior lender may and may not do while the senior debt is outstanding.
What it typically restricts
- A standstill: the junior lender agrees not to enforce for a defined period after a default
- Payment blockage: junior payments stop while the senior loan is in default
- Consent rights over amendments to the junior debt
- Who controls the sale of collateral, and how proceeds are distributed
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Innovation, Science and Economic Development CanadaGovernmentCanada Small Business Financing Program — Guidelines
- 02Treadstone LawLegal commentaryIntercreditor Agreements When Buying an Ontario Business with More Than One Lender
- 03Treadstone LawLegal commentaryHow Sellers Secure a Vendor Take-Back Loan in an Ontario Business Sale
- 04Business Development Bank of CanadaIndustryHow to sell your business
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