Standstill Agreement Insolvency

As a general rule, a company is subject to two separate insolvency tests (each triggers insolvency): the parties may enter into forbearance agreements providing for a moratorium on payments to creditors. In view of the above, there is no established practice in Jersey with respect to standstill agreements between a creditor and a debtor, and there is no case law on this point. However, given the very important weight given to Jersey in maintaining contractual agreements between the parties (according to the usual maxim of the agreement is the law of the parties), there does not seem to be any reason why a standstill agreement should not be feasible in this context. As with standstill agreements, there is no “market-compliant” restructuring agreement. However, the terms of a restructuring may include an “interest holiday”, a reduction (or “debt reduction”), the conversion of debt into equity, or the introduction of a convertible loan that will reduce the company`s debt burden but reconcile the interests of creditors with shareholders in the long term. In the current difficult circumstances of the Covid 19 pandemic, where many companies are severely affected and their cash flows are disrupted, the pressure is increasing on companies that bypass the “insolvency zone”, i.e. cannot pay their debts due to a temporary lack of liquidity or short-term debt (possible debt). A company pressured by an aggressive bidder or activist investor believes that a standstill agreement is useful in weakening the unsolicited approach. The deal gives the target company greater control over the deal process, by imposing on the offeror or investor the ability to buy or sell the company`s shares or launch proxy competitions. The Isle of Man Insolvency Act is governed by the Companies Act 1931 and the Winding-up of the Rules 1934.

The insolvency law provisions contained in this regime favour the traditional principles of liquidation of a “failing” enterprise and not the more modern approach to saving that “failing” enterprise introduced by the Insolvency Act 1986. However, the Manx courts have shown that they are willing to resort outside the manx coast in circumstances where it appears to be the greatest benefit of all parties involved and to use the more modern means of rescue insolvency, now well established in England and other foreign jurisdictions. It could be argued that the main difference between insolvency regimes in the Isle of Man and England in modern times was the absence of an administrative process on the Isle of Man. There is no doubt that out-of-court restructuring can help reduce the pressure on the courts and be more efficient and effective than court proceedings due to shorter lead times and higher recovery rates. As such, they help companies build confidence in the fairness, transparency and accountability of insolvency and restructuring proceedings. After the economic consequences of the Covid 19 pandemic, these considerations are of great importance to both creditors and debtors.. . . .

Comments are closed.