Standstill Agreement In Mutual Fund

“There can be no status quo agreement between investment funds and their borrowers. All companies must abide by the rules (of mutual funds),” Tyagi said on the sidelines of an annual capital markets summit hosted by the industry organization, the Federation of Indian Chambers of Commerce and Industry (Ficci). The MF industry is experiencing a crisis attributed to fund managers who lend to business developers through borrowing programs. The funds also entered into “status quo agreements” with developers “so as not to sell the shares for a certain period of time, even in the event of default.” Status quo agreements, said the president of SEBI In other industries, a status quo agreement can be virtually any agreement between the parties, in which both parties agree to halt the case for a specified period of time. This may include an agreement to defer payments to help a company in difficult market conditions, agreements to stop the production of a product, agreements between governments or many other types of agreements. The agreement is particularly relevant because the bidder would have access to the confidential financial information of the entity concerned. After receiving the commitment of the potential purchaser, the target entity has more time to set up additional defence facilities for the acquisition. In some situations, the target entity agrees to repurchase shares of the target with a premium in return for the potential purchaser. Tyagi`s statement comes at a time when mutual fund houses are giving more time for payments to the Essel Group, promoted by Subhash Chandra.

The Essel Group`s promoters had entered into status quo agreements with lenders, including investment funds, earlier this year, allowing them to repay their loans until September. During this period, lenders would not sell mortgaged shares, it was said. A status quo agreement can be reached between a lender and a borrower. It gives the borrower time to restructure its debts. On the other hand, the lender provides for a certain moratorium on the payment of interest or principal loans. During the status quo period, a new agreement is negotiated, which generally changes the original loan repayment plan.

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16th April 2021
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