Standstill Agreement

Reviewed by Annapoorna | Updated on Sep 30, 2020

What is a Standstill Agreement?

A standstill agreement refers to a contract that contains provisions that direct how a bidder of a company can buy or sell a stock of the target company. It can effectively delay or stop the process of a hostile takeover if the parties cannot settle a friendly deal. It allows parties to the agreement to maintain the ‘status quo’ about a particular matter.

The agreement is especially relevant because the bidder would have access to the target company’s confidential financial information. On receiving the pledge from the prospective acquirer, the target firm is acquiring more time to set up other defences in the acquisition. For certain situations, the target company agrees to buy back stock shares in the target at a premium in return for the prospective acquirer.

Uses of Standstill Agreements

A company that is pressurised by an aggressive bidder or investor can benefit from a standstill agreement to prevent an unsolicited approach. The agreement provides the target company better control over the transaction process by defining buy or sale terms to the bidder or investor or even the proxy contests.

Some of its application are as follows:

  1. A standstill agreement can be used between a lender and borrower. It gives the borrower time to restructure its liabilities. In contrast, the lender provides some moratorium on the payment of interest or principal on loan.

  2. A standstill agreement between a bank and borrower works on similar lines as given above. It stops the contractual repayment schedule for a stressed borrower and imposes some conditions on the borrower.

  3. A standstill agreement can practically be an agreement between parties in which both decide to suspend a particular issue for a specific time. It can be an agreement to defer scheduled payments to help a customer get over severe market conditions. It can also be agreements to pause production of a product.

  4. A standstill agreement can be made between governments for better governance.

  5. At an international level, it can be an agreement between countries to sustain the present state of affairs, in which a liability owed by one to the other is suspended for a specified period.

Example of the Standstill Agreement

A standstill agreement was negotiated between India and Pakistan’s newly formed dominions and the British Indian Empire’s princely states before their incorporation into the new territories. It was a bilateral form of the agreement.

Related Terms

  • Statutory Audit

    A statutory audit is a legally required check of the accuracy of the financial statements and records of a company or government.   Read more

  • Revaluation Reserve

    Revaluation fund is the accounting term utilised when a business establishes a line item on the balance sheet for the purpose of maintaining a contingency account connected to other assets.   Read more

  • Inflation Accounting

    Inflation accounting is a unique method used to weigh on the published statistics of multinational firms in the effects of soaring or plummeting prices of products in some areas of the world.   Read more

  • Operating Revenue

    Operating revenue refers to the revenue generated by a company from its primary activities.   Read more

  • Escalator Clause

    An escalator clause is also known as an escalation clause, where the provision allows for an automatic increase in the wages or prices.   Read more

  • Agency Problem

    The agency problem is a scenario of a conflict of interest which is inherent in all relations wherein one party is anticipated to operate in the best interests of another party.   Read more

Recent Terms

  • Amortisation

    Amortisation is an accounting strategy used to regularly reduce a loan's book value or an intangible asset's book value over a given period of time.   Read more

  • Rationalisation

    The reorganisation of a firm with the view of enhancing the efficiency of the operation is referred to as the rationalisation.   Read more

  • Profit Centre

    A profit centre refers to a branch, unit, or division of a company which directly adds or which normally adds to the bottom-line or profits of the company as a whole.   Read more

  • Authorised Share Capital

    Authorised share capital is the number of stock units (shares) that a company may issue, as set out in its association memorandum or incorporation papers.   Read more