Standstill Agreements Finance

A status quo agreement sometimes takes place when a hostile takeover is underway. Here are the basics of a status quo agreement and what it means for your investment. A status quo agreement can be used between a lender and a borrower. This gives the borrower time to restructure their liabilities. On the other hand, the lender provides for a certain moratorium on the payment of interest or principal of loans. A standstill agreement exists when a company receives more than one loan in exchange for a single guarantee. Read 4 min Status quo agreements can also provide for other measures to protect the company. For example, they could create a time limit within which the bidder cannot attempt a takeover. The bidder`s ability to buy or sell the Company`s shares is limited by these agreements, giving the Target Company a greater voice. In the event of a takeover bid, a standstill agreement can be used to end a hostile takeover when no mutually advantageous conditions can be met. Considering that the bidder will have access to the company`s financial records, a standstill agreement prevents possible exploitation.

A status quo agreement can be reached between governments for better governance. A company under pressure from an aggressive bidder or activist investor will find a status quo agreement useful to mitigate the unsolicited approach. The agreement gives the target company more control over the transaction process by requiring the bidder or investor to have the opportunity to buy or sell the company`s shares or launch proxy contests. In the banking world, a status quo agreement between a lender and a borrower stops the contractual repayment plan of a non-performing borrower and imposes certain actions that the borrower must take. As an investor, you probably won`t appreciate a status quo agreement taking place. When a takeover is rumored, the company`s stock prices usually rise. Most investors are excited about the idea of a merger or acquisition. Whenever the merger does not take place, it usually results in a return of the share price to what it was before. Therefore, any gains in the share price that you thought you could get are usually offset by the status quo agreement. If a business receives another loan against its existing collateral, it will convince the first lender to be subordinated to the new loan or receive a new subordinated loan to the first. In both scenarios, lenders use a subordinated agreement to describe the terms between them.

Some senior lenders may include a standstill clause or a clause to protect their interests. When they do, the resulting agreements are called subordination and status quo agreements. In other areas of activity, a standstill agreement can be virtually any agreement between the parties in which both agree to hold the case for a period of time. This could be an agreement to defer payments intended to help a company survive difficult market conditions, agreements to stop producing a product, agreements between governments, or many other types of agreements. As a defense against hostile takeovers, the target company may receive a promise from a hostile bidder to limit the amount of shares the bidder can buy or hold in the target company. This gives the target company time to build other defense strategies against acquisitions. In return, the target company can buy back the shares of the potential acquirer of the target company at a premium. The target company may offer a different incentive, e.B a seat on the board of directors. A standstill agreement can also be an agreement between the parties not to negotiate with other parties during negotiations between them for a certain period of time.

It can also be used as an alternative to bankruptcy or foreclosure. A standstill agreement is a contract between a company and a company that is trying to take it over. The standstill agreement puts an end to the hostile takeover. In most cases, the acquired company will offer to buy back the shares held by the hostile acquisition offeror. The company usually has to pay a premium to recover these shares. Other agreements that do not involve share purchases may also be concluded between the two parties. Status quo agreements exist not only between the two lenders, but can also exist between lenders and borrowers. They may provide that the borrower has a period during which no payment is required from him so that he can restructure his liabilities. In general, standstill agreements can be used to suspend a transaction for a period of time. For example, a lender and borrower may agree to suspend debt payments for a certain period of time.

A standstill agreement or provision prohibits subordinated or subordinated lenders from exercising remedies for a certain period of time after a business goes bankrupt. A “remedy” is the enforcement action a lender can take to remedy a default. The status quo puts the subordinated lender`s default repair activities in a “shutdown” to give the lead lender time to take certain steps if it so wishes. During the standstill period, virtually all remedies are prohibited, unless the agreement expressly provides for exceptions. In general, standstill provisions do not last more than 150 to 180 days after a subordinated lender notifies the lead lender that it intends to take enforcement action. These agreements can also protect companies from aggressive or hostile takeover attempts. Standstill agreements are also used to suspend the usual limitation period for making a claim in court. [1] Standstill agreements can be used to determine and dictate how a bidder can manage the shares of its target company, including selling, buying or voting. Senior lenders typically use standstill provisions to protect themselves in the event that a company defaults on the subordinated loan only if they consider the likelihood of such default to be relatively high. Senior lenders also need a standstill clause if actions taken by the subordinate lender could jeopardize the guarantee or repayment of the senior lender`s loan. For example, the loan agreement for a subordinated loan may stipulate that the lender has the right to move to the first position on certain collateral to remedy a company`s default. This would undermine the collateral position of the lead lender.

A status quo agreement between a bank and a borrower works in the same way as the above. It stops the contractual repayment plan for a stressed borrower and imposes certain conditions on the borrower. A standstill contract is a contract that contains provisions that govern how a bidder of a corporation may buy, sell or vote on shares of the target company. A status quo agreement can effectively stop or stop the process of a hostile takeover if the parties cannot negotiate a friendly agreement. A standstill agreement can practically be an agreement between the parties in which both decide to suspend a particular issue for a certain period of time. It can be an agreement to defer scheduled payments to help a customer overcome difficult market conditions. Agreements may also be made to interrupt the production of a product. Confidentiality clauses are often part of standstill agreements. These clauses must be enforced before due diligence documents are obtained. They allow some recourse when a bidder exploits confidential information to launch a hostile takeover when no sales agreement can be concluded. This, along with the total prevention of hostile takeovers, is one of the main objectives of a status quo agreement.

A status quo agreement was negotiated between the newly formed dominions of India and Pakistan and the princely states of the British Empire of India before they were incorporated into the new territories. It was a form of bilateral agreement. A recent example of two companies that have signed such an agreement is Glencore plc, a Swiss-based commodity trader, and Bunge Ltd., an agricultural commodities trader in the United States. In May 2017, Glencore took an informal approach to buying rubber bands. Shortly thereafter, the parties agreed to a standstill agreement that prevents Glencore from accumulating shares or making a formal offer of rubber band until a later date. A status quo agreement may also exist between a lender and a borrower if the lender stops charging a planned payment of interest or principal on a loan to give the borrower time to restructure its liabilities. A standstill agreement provides a target company with different levels of protection and stability in the event of a hostile takeover and promotes an orderly sales process. It is an agreement between the parties not to take further action. A standstill agreement can be used as a form of defense against a hostile takeover when a target company receives a promise from a hostile bidder to limit the amount of shares the offeror buys or holds in the target company.

By soliciting the promise of the potential buyer, the target company saves more time to build other acquisition defenses. In many cases, the target company promises in return to buy back the shares of the potential acquirer of the target company at a premium. A standstill agreement is an agreement between a potential acquirer and a target company that limits the acquirer`s ability to increase its stake in the target company. The agreement can be used to terminate a hostile takeover attempt, usually at the price of a cash payment to the potential acquirer, which includes a repurchase of shares already held by the acquirer at a premium. Or the target company can grant the acquirer a seat on the board of directors if it does not increase its stakes. Common shareholders tend not to like status quo agreements because they limit their potential returns from an acquisition. Tiffany C. Wright has been writing since 2007. She is an entrepreneur, interim CEO and author of “Solving the Capital Equation: Financing Solutions for Small Businesses.” Wright has helped companies raise more than $31 million in financing. .