There are three types of HDIs and one of three types applies when the taxpayer`s obligation to pay an amount within the meaning of a subordination agreement has been deferred and the deferral is a function of the market value of the taxpayer`s assets that goes beyond his debts. Subordination agreements can take many forms. They can be bilateral, that is, between the debtor and the creditor. They may be multilateral and include creditors other than parties. They may take the form of a change in the provision, i.e. in favour of other creditors and future creditors and open to their adoption. The subordination agreement may be a term of the loan or it may be a hedging agreement concluded some time after the loan has been established. The effect of a subordinated loan was described in Ex Parte: De Villiers and Another NNO: In Re Carbon Developments (Pty) Ltd (Liquidation) from 24 to 29 by Goldstone JA from 24 to 29, the effect of a subordination agreement is generally related to the fact that the execution of a debt depends on the solvency of the creditor and the prior payment of its debt to other creditors. Subordination agreements fall within the scope of Section 8F of the Income Tax Act, which deals with hybrid debt. The purpose of this section is to redefine credits with capital or dividend characteristics. Subordination agreements can be used in a variety of circumstances, including complex corporate debt structures. What level of approval is required for syndicated loans to reorganize the mandatory pre-filing? Is it the agreement of the lenders who hold two-thirds of the value of the credit or do all lenders have to give their consent? Do the principles of priority and subordination apply to mandatory advance payments? If the transaction is governed by an agreement on priority agencies (SFA) and an inter-creditor agreement (IC), the answer lies in the interpretation that is assigned to the relevant provisions. If companies have such agreements, the Income Tax Act imposes two things.

First, the interest payable on the liability is redefined and is considered a dividend as declared and paid by such a company on the last day of the valuation exercise.