Intercreditor agreements often include a provision which
prevents the junior creditor from taking enforcement action against
collateral upon default under the junior debt for a specified
period of time after notice of the default has been given to the
senior creditor – this is described as the
"standstill period". The purpose of the standstill period
is to give the senior creditor an exclusive period of time during
which the senior creditor may assess its rights and, if the senior
creditor determines that it will enforce its rights against the
collateral, to so enforce such rights without interference from the
The length of the standstill period is usually negotiated, as
the junior and senior creditors have competing interests. The
junior creditor will usually favour a shorter standstill period, as
it will be anxious to begin enforcement action upon default.
However, the senior creditor will usually favour a longer
standstill period, which will allow them more time to implement
their own strategy for enforcement against the collateral. While
the length of time of standstill periods vary, most are between 90
and 180 days. There are various factors specific to the
circumstances of each transaction that can affect the length of
time of the standstill period, including:
the type and location of the collateral;
the borrower's business;
the amounts of the obligations owed to the junior and senior
creditors under their respective credit facilities; and
the relative bargaining power of the parties involved in
negotiating the standstill period (i.e. the junior and senior
Regarding the collateral, its type must be considered;
specifically, whether it is perishable or could otherwise quickly
diminish in value and how liquid and readily marketable it is.
Perishable and liquid collateral usually justify a shorter
standstill period. The location of the collateral must also be
considered. If the collateral is located in multiple jurisdictions,
a longer standstill period could be justified. For example, in a
situation where the borrower's collateral consists mainly of
perishable inventory in a single warehouse which can easily be
sold, the junior creditor can expect that the senior creditor will
agree to a relatively shorter standstill period. However, if the
collateral is mostly non-perishable equipment located in multiple
jurisdictions, the senior creditor can expect that the junior
creditor will agree to a relatively longer standstill period.
Jessica Foster's practice focuses on
financing transactions, including syndicated lending and
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The British Columbia Court of Appeal has recently considered whether the doctrine of unconscionability can be invoked to set aside a contractual clause providing for the payment by one party to the other...
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).