At the time of writing, the COVID-19 pandemic is having a profound and deeply unpredictable impact on the economy.* We have no knowledge of what lies ahead or the timing of it. In fact, it is precisely this ignorance that led us to create the stop and toll agreement template that we describe below (and which you can access here in a commented version and here in a version without annotations). For example, a court may find that a loan agreement or lease is in default because the borrower or tenant has not paid. But what`s the point? Aside from temporary eviction stays, what is the value of a judgment against a borrower or tenant who might not be able to pay due to the pandemic? If the court debtor owns valuable assets, he or she may hide it or seek Chapter 11 in a bankruptcy court in need of protection, in which case the judgment has little practical value. There is a risk of starting negotiations on a status quo, and such an agreement must be carefully crafted and documented to be implemented. While the AbA agreement is not intended as a substitute for legal advice and should be tailored to the facts and circumstances of a separate contractual relationship, a standstill/toll agreement provides a practical business tool to help the parties develop solutions before violations occur, even in the face of current uncertainties, and provides greater certainty once the effects of the pandemic are eliminated. These agreements can avoid litigation in the event of a breach and maintain important relationships. Groundhog Day: a crisis management problem. One of the most worrying aspects of the current official consensus on the status quo is its scheduled expiry at the end of 2020. No one has really suggested that the crisis will be resolved by then, or that debt-ridden governments and a health shock next fall will have access to new funds on acceptable terms. The expiry date ensures that the same parties meet again at the same negotiating table on the sidelines of the upcoming G20 IMF-World Bank conclave.
One way to make the next rounds of silent talks less chaotic and painful would be to offer all current creditors the option of automatically prolonging the impasse, provided certain agreed conditions are met. These conditions could still include sluggish health performance and spending, a continued decline in exports, and GDP growth, all of which are confirmed by an accredited body. If you would like more information on whether a status quo or toll contract could be useful or appropriate for your business, please contact the sullivan-Worcester LLP lawyer with whom you consult regularly or the lawyers mentioned above. As with health protection measures, an important question of doctrine in status quo agreements is whether they violate public order. They will generally be enforceable if they do not harm the large collective. Courts cannot impose a status quo in order to prevent a voluntary bankruptcy initiated by the debtor, para. B example because the process has an impact on all the debtor`s creditors and not only on the other party (e.B. creditor) of the status quo. However, the same creditor may be able to assert rights from the standstill to lift the automatic stay and seize the security, an outcome that the debtor may wish to avoid. In all but a small number of cases, the status quo are likely to be better for the parties than any form of judicial intervention, whether bankruptcy or litigation, and can provide the stability needed to take advantage of bailouts. Bankruptcy is likely to be costly in terms of management costs and energy and can take control away from the debtor.
Disputes over contractual disputes are likely to destroy most relationships. In both cases, the parties will face difficult decisions, for example whether .B it is a question of switching to other contractual partners or simply renouncing them. The costs of change are often high, and the uncertainties of the pandemic seem to exacerbate this. Building new relationships during COVID can be problematic, as the parties may have little experience with each other before the pandemic and little evidence of how to assess performance in the future due to the uncertainty inherent in the situation. The agreement is a model for companies facing problems in the execution of contracts, including payment or collection, that could soon be overwhelming for the parties and the legal system. The coronavirus pandemic has undoubtedly led many businesses – especially small and medium-sized businesses and those in the most affected industries – to take unprecedented measures to survive. For many companies, a nationwide lockdown has meant they need to review all their contracts to determine how the pandemic will affect their business arrangements and what happens if they are not able to function as agreed. Essentially, the model agreement refers to “standstill issues” and establishes a “standstill period” during which the party undertakes not to seek certain remedies and the party who, because of their excellence, does not agree that it will not carry out a series of extrajudicial acts that could ultimately harm the other party. He understands that certain obligations, for example. B for partial payments or the supply of certain goods or services may remain in place during the standstill period. It contains remedies in the event that one of the parties is not harmed.
In terms of practice, the model agreement explicitly provides for the possibility of traditional or electronic enforcement and provides a mechanism to determine how one party should be communicated to the other party – particularly useful at a time when so many businesses are closed or managed from remote locations rather than their usual locations. If you have any questions about status quo contracts, contact Rick Sorenson email@example.com. Contact Dylan Denslow firstname.lastname@example.org. When considering the available options, it would be desirable to initiate a discussion on status quo agreements. While termination agreements are most often used in mergers and acquisitions, in other circumstances, uncertain economic times of COVID-19 should be taken into account. This cooperation agreement does not release the parties from their obligations. Instead, it recognizes the economic interests of the time and formalizes the agreement between the two companies to maintain the business relationship through turbulence. Given the current economic uncertainties, companies or individuals in a business relationship may want to arrange for a temporary agreement on that relationship in advance as long as the economy stabilizes. Whether it`s a seller-buyer relationship, a creditor-debtor, a lender-borrower, a landlord-tenant, or anything else, a “stand still” agreement for a certain period of time may be exactly what is needed to maintain the relationship or at least establish the ground rules about how the relationship is to be maintained for an interim period. As with health and safety terms, downtime is not a perfect mechanism.
In the absence of good faith (or at least mutually assured destruction), there may be little appetite to give in. The benefits of forbearance can be difficult to explain to an angry client who has not been paid by her debtor but is warned by her creditors. We have prepared a model stop and toll agreement that can serve as a basis for solving these problems. It is intended to be a model for companies that encounter problems in the execution of contracts, including payment or collection, which can soon be overwhelming for the parties and the legal system. It contains the basic elements that such an agreement should contain, thus providing companies with a balanced opportunity to legally “freeze” their business relationships while stabilizing the economy. Of course, this model agreement is neither intended to serve as legal advice nor to replace it. .