Globally, one would expect most insolvencies to be in the offshore oil and gas sector in the short to medium term, as the one with the most debt. And we`ve already seen a series of restructurings in Ireland that have focused on debt reduction. However, when it comes to negotiating breakpoints with the creditors of a high street chain, one would expect the focus to be a little less on balance sheet repair and more on operational improvement. And for retailers, of course, the main creditor can be the lessor. For the same reason, we are already seeing a disproportionate extension of spreads to European commercial mortgage securities backed by retail real estate portfolios. As noted elsewhere in this article, the benefits of a standstill agreement are beneficial to both parties when it makes economic sense to “buy time” that the debtor company can recover. The other part of this coin is that creditors may be horrified by the prospect that negotiated status quo terms will reach a wider audience. Negative consequences may arise from the actions of secondary creditors, encouraged by the news of a generous adjustment to major lenders. Worse still, other customers could demand terms at least as advantageous for their own loans if this was unjustified.
The parties may enter into forbearance agreements providing for a moratorium on payments to creditors. This term is generally used in three quite different contexts: (i) in certain acquisition situations where a company and a shareholder agree to limit the shareholder`s ability to acquire other shares in the company; (ii) in agreements which have the effect of preventing or extending statutory limitation periods for different types of rights; and (iii) in a restructuring context where a private agreement has been entered into between the creditors and the debtor enterprise. It is the latter form of status quo agreement that is discussed in this article. Offshore companies based in Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey and Mauritius are no more immune to the effects of the pandemic than those created on land. Typically, they face challenges when the company violates or violates an obligation in one of its financing agreements, or when the company may not be able to pay all of its debts when it matures, if the level of payment is maintained due to a credit crunch. However, boards of directors and creditors of their companies have important instruments at their disposal that allow for a consensual approach to managing debt problems or that have strong support for these measures, but not unanimity to provide significant protection and respite, while restructuring options are under consideration. The second means is restructuring. To the extent that Bermuda does not have a direct correspondence with administrative procedures in England and Wales or with Chapter 11 procedures in the United States, this gap has been filled by the practice of the Supreme Court of Bermuda over the past two decades by imaginatively clarifying its power to appoint liquidators under the Companies Act, including the power to appoint provisional liquidators for restructuring purposes.
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