The term “standstill agreement” is used in several different senses in the financial world. All of the uses of this term refer to situations in which the parties involved in a negotiation agree to a temporary halt to remove pressure from the negotiations and provide some room for working out an agreement. Agreeing to a standstill agreement can provide benefits for the parties involved and make more space for a better negotiation process.
In the first sense, a standstill agreement is a commitment from a lender to stop the collections process on a borrower. Lenders may agree to a standstill if a borrower demonstrates an interest in negotiating and reaching a solution and shows that she or he has the ability to make good on the debt if given some room in which to do so. During the standstill agreement, the lender does not pursue further action against the borrower and both parties can prepare a plan for resolving the debt satisfactorily.
Another type of standstill agreement can be seen when two parties are conducting negotiations and agree not to enter into negotiations with a third party. For example, if a company is discussing a merger with another company, both companies may indicate that they will not pursue other options with other companies for a set period of time. This type of agreement is designed to create more opportunities for negotiations, and to avoid situations in which one side or the other feels pressured to act quickly or lose out on the deal.
During hostile takeovers, the target firm may ask for a standstill agreement. In this situation, the bidding firm is asked to stop acquiring shares or the target firm offers to buy back shares at a premium. This allows an opportunity to return to the negotiating table to discuss the possibilities for an arrangement which will benefit the shareholders of both companies. The standstill agreement is one among many topics which can be used to delay a hostile takeover for the purpose of getting a better deal.
When a standstill agreement is discussed, all parties should make sure that the terms of the agreement are clear. An attorney may be retained to write up and agreement for the parties to agree to for the purpose of confirming the details in writing. The terms should include a discussion of how long the agreement applies and how negotiations will proceed once both sides have entered into the agreement.
