Standstill Agreement Meaning In Finance

In banking, a status quo agreement between a lender and a borrower terminates the contractual repayment plan of a struggling borrower and imposes certain steps that the borrower must take. A status quo agreement is an agreement between a potential acquirer and a target entity that limits the purchaser`s ability to increase its interest in the target company. The agreement can be used to terminate a hostile acquisition attempt, usually at the price of a cash payment to the potential purchaser, which involves a surtax buyback of the shares already held by the purchaser. Or the target company may grant a seat on the purchaser`s board of directors in exchange for the absence of an increase in its holdings. The concept of a status quo agreement refers to different forms of agreements that companies can enter into to delay actions that could be taken otherwise. Ordinary shareholders tend not to like status quo agreements because they limit the potential returns of a buyout. A subordination agreement is an agreement between two lenders — a priority lender and a junior lender. The junior lender willingly agrees to subordinate its right to all or part of a company`s assets to a lead lender. This means that the primary lender is first entitled to the assets if the business goes bankrupt or goes bankrupt on both loans. A status quo agreement is an agreement that preserves the status quo.

It is an agreement between the objective and the bidder that prevents the bidder from making an offer to purchase the target without first obtaining its approval. It can be added as a provision in the confidentiality agreement and will be executed before obtaining due diligence material. A status quo agreement aims to prevent hostile bids and provides a possible remedy in case the bidder uses confidential information to make a hostile offer if the parties fail to reach a mutual agreement on the terms of sale. A status quo agreement can be reached between governments for better governance. In general, status quo agreements can be used to interrupt a transaction for a period of time. For example, a lender and a borrower may agree to stop paying the debt for a period of time. The debtor company will be a party, with operating subsidiaries holding valuable assets or at risk of violating a formal procedure or its financial obligations, as well as, as a general rule, the ultimate parent company. Other parties will be creditors and other stakeholders essential to the success of the business, for example.B. key customers, suppliers (if the entity is a critical customer, useful concessions can be obtained) and the pension manager/regulator (if there is a significant pension deficit).