The Isle of Man law does not provide for restrictions on status quo agreements. Faced with a credit crunch, debtors and their creditors are free to enter into any agreements they may have in their long-term interests. The second way is restructuring. Since Bermuda has no direct equivalent to administrative procedures in England and Wales or as part of a Chapter 11 proceeding in the United States, this gap has been filled by the practice of the Bermuda Supreme Court over the past two decades, its power to appoint liquidators under the Corporations Act has been interpreted in a fanciful way to include the power to appoint interim liquidators for restructuring purposes. This is a particularly useful option for a Bermuda business in which directors believe the business is viable and provides a high level of creditor support to restructure the company`s debt, but not all creditors can accept this approach or be persuaded to enter into a status quo contract. When an agreed status quo period expires, but the creditor is satisfied that the company has made good efforts to address its liquidity problems and that the creditor`s debts are reasonably expected to be met soon, it is not uncommon for a status quo agreement to be shaken up and for a new period of leniency to be agreed upon, perhaps with heavier terms; For example, creditors may insist that there be more transparency and/or an agreement so that there is no debt challenge in a liquidation procedure when necessary. A status quo agreement is an agreement between all parties to maintain the current state of affairs, including the suspension or extension of a statutory or contractual statute of limitations. The decision to extend or suspend (or refuse) a statute of limitations may have significant practical effects that should be fully considered. The agreement must (i) reflect the appropriate parties, including all parties to the dispute, and (ii) all claims or cases that are the subject of litigation.
Parties should consider whether to take a broad or narrow approach. Given the seriousness and depth of the challenge that Covid-19 represents, parties with creditor-debtor relationships may have a consensual approach to the unique circumstances that precede them, as we have seen, with mortgage and other leave. If a debtor and a creditor are able to reach a broad agreement between them, this will often take the form of a status quo agreement. A status quo agreement can be a useful tool in many scenarios. For example, a company faces individual pressure from creditors when a legal claim has expired and the debtor company is temporarily insolvent, but the unsecured creditor does not wish to avail itself of a collective liquidation procedure, with all the complexity and associated costs. In this case, the status quo agreement maintains the filing of proceedings long enough to allow the debtor company to raise the necessary funds to repay the debts. In a more complex situation, for example. B, where there are several bondholders (perhaps different marginal tranches) and institutional lenders, the status quo agreement provides a respite to explore formal restructuring. In the event of a delay in a loan agreement or if it is likely that this will occur in the future due to payment constraints for the company, the company and its creditors may enter into a status quo agreement to suspend either the creditor`s performance rights (if the late payment has already occurred) or the payment obligations (if the default occurs in the near future).