Buying Time: A Lender's Guide to Standstills and Informal Workouts
Standstill arrangements provide for a temporary pause on enforcement action, giving distressed borrowers breathing space to stabilise. This article outlines five key considerations for lenders entering standstill arrangements and highlights the 15 key principles that should guide informal workout processes.
What you need to do
Review your existing facility and security arrangements to identify any deficiencies. When negotiating standstill terms, ensure you obtain debt acknowledgements, confirmation of defaults, enhanced information rights, and include comprehensive reservation of rights provisions.
We will very soon reach a point where many businesses through no fault of their own face liquidity issues. Lenders will need to standstill or forbear. It has been quite a time since such mechanisms have been required. So, what are the principles? What are the key considerations? Unsurprisingly, there are generally accepted and developed workout principles (the INSOL principles) which serve as an excellent touchstone when dealing with a workout. Before detailing those principles, we set out our insights for lenders when considering forbearance.
There are five key considerations lenders should bear in mind when entering into standstill arrangements.
- It's time to get your house in order: Lenders should consider whether there are any tidy-ups or fixes that are required to their facility and security arrangements. These may include requiring that a security review be conducted to identify any deficiencies in the security package so that, where such deficiencies are identified, they can be remedied and the necessary amendments incorporated into the standstill or forbearance arrangements.
- Require an acknowledgement of the debt owing by the borrower: Seek an acknowledgement from the obligors of the amount of debt owing, as well as an acknowledgement of the validity and effectiveness of the facility and security documents. This serves to put beyond doubt that a debt is owing and that the underlying documents remain effective.
- Require an acknowledgement that the events of default have occurred: The standstill arrangement should include an acknowledgement that the relevant events of default have occurred. This again serves to put beyond doubt that those events can be relied upon should the standstill arrangement come to an end.
- This is your chance to ask for more information: If an obligor is in distress, you may require additional information regarding the financial viability of the company (to the extent the terms of the finance documents do not already provide this). Consider whether to ask that an accounting firm be engaged to prepare an independent business review, or require, for example, more frequent financial reporting or access to premises.
- Make sure that all of your rights are expressly reserved:
- Ensure that the standstill arrangement contains a reservation of rights, such that your rights under the existing defaults are not waived by reason of the standstill but are instead preserved in the event that those events of default need to be relied upon in the future.
- If appropriate, ensure that you are only "standing still" in respect of the defaults that you are aware of or agree not to take action on. This reserves your rights to take enforcement action for new events of default.
- There may be circumstances where you agree to waive your rights (e.g. to enable a refinancing to occur). If that is the case, make sure that a new event of default is deemed to occur upon any non-compliance with the standstill so that immediate enforcement action can be taken if necessary.
It is also worth noting the fifteen best practice principles regarding informal workouts, which Ashurst, together with insolvency law reform specialists Richard Fisher and Ron Harmer, prepared for the Asian Development Bank. Richard and Ron were the architects of the Voluntary Administration process. These principles provide an excellent guide for lenders navigating informal workout situations and are set out below. Naturally, we would be happy to talk to your team about navigating standstills and distress.
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Principle 1 All finance creditors (other than those whose exposure is negligible) should be eligible to participate in an informal workout process. |
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Principle 2 An informal workout should only involve a debtor corporation when the circumstances are such that it appears possible to resolve any financial difficulties of the debtor and achieve long-term viability. |
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Principle 3 A restructure should be based upon a business plan that should address operational as well as financial issues. A business plan should contain forecasts, prepared upon documented and reasonable assumptions as to future events, which evidence that the business of the debtor corporation can generate sufficient cash flow and profit to meet its obligations existing after the restructure. |
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Principle 4 Where a debtor is found to be in financial difficulties, all relevant creditors should be prepared to co-operate with each other and to give sufficient (though limited) time ("Standstill Period") for information about the debtor to be obtained and evaluated and for proposals for resolving the debtor's financial difficulties to be formulated and assessed, unless such a course of action is inappropriate in a particular case. The length of such a Standstill Period should be limited to the time that is reasonably required to fulfil the above objectives. |
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Principle 5 During the Standstill Period, all relevant creditors should agree to refrain from taking any steps to enforce their claims or (otherwise than by disposal of their debt to a third party) to reduce their exposure to the debtor, provided that during the Standstill Period their position relative to other creditors and each other will not be prejudiced. |
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Principle 6 During the Standstill Period, the debtor should not take any action which might adversely affect the prospective return to relevant creditors (either collectively or individually) as compared with the position at the commencement of the Standstill Period. |
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Principle 7 The interests of relevant creditors are best served by co-ordinating their response to a debtor in financial difficulty. Such co-ordination will be facilitated by the selection of one or more representative co-ordination committees and by the appointment of professional advisers to advise and assist such committees, where appropriate, and the relevant creditors participating in the process as a whole. |
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Principle 8 Creditors should agree to appoint one creditor (usually one of the creditors with the largest exposure to the debtor, or with particular expertise in managing workout negotiations) or an independent party to act as chairperson of the co-ordination committee, to lead negotiations with the debtor and to ensure the expeditious progress of the informal workout negotiations. |
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Principle 9 Creditors participating in an informal workout should ensure that they take an active role by appointing an experienced and competent representative. That representative should ensure that appropriate levels of management within the creditor organisation are informed of the progress of the workout at all important stages, and that the prospective and likely outcome of the workout is expected to be acceptable to the decision-makers within the creditor organisation. |
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Principle 10 During the Standstill Period, the debtor should provide, and allow relevant creditors and/or their professional advisers, reasonable and timely access to all relevant information relating to its assets, liabilities, business and prospects, to enable proper evaluation to be made of its financial position and any proposals to be made to relevant creditors. |
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Principle 11 The debtor should meet all reasonable costs of creditors whilst it is considering restructuring proposals. This would include the costs of professional advisers, and any costs necessarily incurred by the co-ordination committee. |
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Principle 12 Proposals for resolving the financial difficulties of the debtor and, so far as practicable, arrangements between relevant creditors relating to any Standstill Period should be based on relevant applicable law and the relative positions of relevant creditors at the commencement of the Standstill Period. |
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Principle 13 Information concerning the assets, liabilities, business and prospects of the debtor, and any proposals for resolving its difficulties, should be made available to all relevant creditors. Unless publicly available, such information should be treated as confidential, and only be used by creditors for the purpose of determining and ascertaining an informal workout proposal. |
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Principle 14 If additional funding is provided during the Standstill Period or under any rescue or restructuring proposals, the repayment of such additional funding should, so far as practicable, be accorded priority status as compared to other indebtedness or claims of relevant creditors. |
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Principle 15 In endeavouring to determine disputes between creditors or between a debtor and its creditors, regard should be had to the possibility of referring such disputes, with the consent of those involved, to mediation. |
Other Author: Isabelle Binsted, Graduate.
Want to know more?
- Informal workouts (25 October 2022)
See our previously published article from 2022 on informal workouts and their ability to allow financially distressed companies to negotiate directly with creditors to restructure debts and avoid formal insolvency. - Distress in the market in 2025 – A year in review (10 December 2025)
See our 2025 year in review on the continued rise of financial distress and how this is shaping restructuring activity and influencing lender behaviour in the broader market.
