Although a written agreement on the status quo is not necessary in cases where there is an effective informal agreement between the creditors concerned, it is clearly preferable, for security and evidence reasons. In the event of a written status quo agreement, creditors who are contracting parties must agree that they will not seek to improve their positions vis-à-vis other creditors during the status quo period; will not insist on the payment of the sums due to them; Do not initiate recovery, warranty or liquidation proceedings; and will allow the use of existing lines and credit facilities. As established elsewhere in this article, the benefits of a status quo agreement benefit both parties when it is economically sound to recover “purchase time” for the debtor company. The debtor`s ability to continue to exist during each trading period is essential to the success of an out-of-court restructuring. While some debtors may not need third-party funds to continue their operations, many do. In this case, or where additional resources are required during the restructuring process for other justified reasons, the sources are, as a rule, the proceeds from the sale of non-core assets, new investments by shareholders or additional loans from existing creditors (including banks). Unless additional funding is given some priority, it is highly unlikely that funding will be provided and that training can last long enough for a restructuring plan to be fully developed and considered by the creditors concerned. Subordination and sub-faith agreements can take many forms depending on the nature of the transaction. In the case of transactions in which both the senior and the subordinate lender have pawn rights on the same guarantees, blocking and status quo rights are two key elements. In these cases, the subordinate lender generally subordinates its rights to appeal against the borrower to the superior rights of the primary lender, with the exception of those that authorize non-default current payments.
As a general rule, the subordinate lender not only subordinates the priority of its pledge right in the guarantees common to the principal lender`s pledge right, but also agrees to defer or delay measures against these guarantees for a period of time, giving the principal lender the ability to control the pace and conditions of the exercise of its corrective measures or to enter into a training agreement with the borrower. Status quo agreements can be very useful in the early stages of a company`s financial difficulties when a creditor might be tempted to rely on the terms of its financing contract to threaten to accelerate its loans and be paid before the company`s default is triggered as part of its agreements with other creditors. These agreements are also useful because the company`s situation continues to deteriorate and both the company and its creditors face a difficult choice between insolvency proceedings and restructuring.