statement of principles for a global approach to multi-creditor workouts

INSOL INTERNATIONALwww.insol.orgTHIRD PRINCIPLE: During the Standstill Period, the debtor should not takeany action which might adversely affect the prospective return to relevantcreditors (either collectively or individually) as compared with the positionat the Standstill Commencement Date.Commentary:In return for support from the relevant creditors, the debtor shouldagree not to take any action which will disadvantage relevantcreditors during the Standstill Period, apart from paying employeesand trade and other (non-relevant) creditors in the ordinary courseof business. Examples of such prejudicial action would be offeringsecurity in the form of charges, mortgages, liens, guarantees orindemnities to non-participating creditors, transferring assets orvalue away from the companies to which participating creditors haverecourse, selling assets to third parties at an undervalue or tocreditors who, because they are already owed money, will not payfor them, or otherwise running down or shifting value from itsbusiness so that the prospects of repayment to the relevantcreditors are diminished. Incurring new additional borrowings orcredit from persons who are not relevant creditors can also be anissue of sensitivity, as can the use of techniques such as factoringor leasing to raise new finance.In some cases, the relevant creditors will insist that security begiven to them at this stage for their collective benefit in return fortheir support during the Standstill Period. This is usually a topic fornegotiation in connection with the standstill. If at this stage,however, additional funding (ie, in excess of existing levels) isrequested by the debtor from relevant creditors, the granting ofsecurity for such additional funding would be quite usual (seecommentary on the Eighth Principle).17