Standstill agreements: a lifeline for borrowers in financial hardship
When facing financial challenges, time can be the most valuable asset a borrower has. A standstill agreement with creditors can be a critical tool in these situations, both in managing short-term financial strain and creating space for long-term solutions.
What is a Standstill agreement?
A standstill agreement is a formal arrangement between a borrower and its lenders, where the lenders agree to temporarily pause enforcement actions. These actions can include demanding repayment, charging default interest, or taking possession of the secured assets. In return, the borrower typically agrees not to take actions that could further worsen the situation, such as taking on new security or selling their assets.
The value of a standstill agreement
These agreements, effectively a form of a ‘temporary freeze,’ can provide valuable breathing room for borrowers to:
- Assess their financial position.
- Explore restructuring options (such as reorganising the liabilities to enable the business to survive).
- Negotiate revised repayment terms.
- Seek new funding or equity injections (such as equity investment or shareholder contributions).
Critically, a standstill agreement can help borrowers avoid defaulting on a loan, preserve relationships with lenders, and potentially prevent insolvency proceedings.
Tips for borrowers considering a standstill agreement
- Act early: Don't wait until you're already in default. Lenders are more willing to negotiate if you’re proactive and transparent about upcoming challenges.
- Be transparent: Share detailed financial information and a clear plan for how you intend to stabilise the business.
- Engage advisors: Involve legal and financial advisors to help you navigate negotiations and draft fair, workable terms.
- Be realistic: A standstill is a temporary measure. Use the time wisely to develop and begin implementing a longer-term solution.
While entering into a standstill agreement may signal distress, it can also demonstrate responsible financial management. It's a constructive step toward recovery—not just a pause, but a strategic opportunity to regroup and rebuild.
Our Real Estate Finance team acts for both borrowers and lenders and aims to ensure all transactions are swift, expertly facilitated and remain on track to a satisfactory conclusion. If you have any questions about standstill agreements, or need advice in relation to a finance document, please get in touch with our Real Estate Finance team to find out how we can help.