What is a subordination agreement between two lenders to the same Ontario corporation?

A subordination agreement is a contract between two lenders who both hold security interests in the same corporation's assets, in which one lender agrees that its priority will rank behind the other's, regardless of what the order of registration under the Personal Property Security Act would otherwise produce. It effectively overrides the normal first-to-register priority rule by private agreement between the two secured parties.

This comes up most often when a corporation wants to bring in new financing but already has an existing lender with a registered general security agreement. A new lender may be unwilling to extend credit if its claim would automatically rank behind the existing lender's earlier registration, so the parties negotiate a subordination agreement — sometimes covering all of the existing lender's security, sometimes just a specific asset or amount — to give the new lender the priority position it needs. The corporation itself is often not a party with much say in the negotiation, since it's primarily an agreement between the two lenders about their relative rights, though the corporation typically needs to consent and may need to provide information to support the negotiation.