Contractual subordination. Loans are made to the same company and the senior creditor and junior creditor agree priority of payment and enforcement rules by contract.

Structural subordination. In a corporate group structure, the senior creditors lend to a subsidiary (usually an operating entity that holds assets) and the junior creditors lend to the holding company. The junior creditors (as creditors of the holding company) effectively rank behind the senior creditors (as creditors of the subsidiary) because where a holding company and its subsidiary becomes insolvent, the creditors of the subsidiary will be repaid by the monies realised from the sale of the assets of the subsidiary before a distribution is made by the subsidiary to the holding company. Only if the holding company receives a distribution from the liquidator of a subsidiary will the holding company be able to meet the claims of its creditors from the proceeds realised from the subsidiary.