Standstill Agreement

A standstill agreement obliges a potential buyer not to increase its stake for a certain period of time. This prevents the buyer from acquiring more and more shares without consent. Companies use it to protect themselves against a creeping takeover. Such a clause is typically agreed alongside a confidentiality agreement when an interested party receives confidential information: the seller wants to prevent insights gained in the process from being used afterwards to buy shares in the market or to build a stake without agreement.

Besides the prohibition on acquiring shares, the clause regularly covers undertakings not to make a public offer, not to solicit proxies, not to table shareholder resolutions and not to form groups with other shareholders. Terms of one to two years are common, supplemented by exceptions where a third party makes an offer or the company consents. The term has a second, distinct meaning in restructuring, where a standstill agreement commits creditors to take no action for a limited period so that a restructuring concept can be developed. Economically it buys the company exactly the time that makes a solution possible at all.

Substantively, creditors undertake for a defined period not to accelerate, not to enforce security and not to pursue execution, while the company in return meets reporting obligations, makes no preferential payments and works on a restructuring concept. Terms of three to six months with an extension option are common.

Note: This explanation is for general information only and does not constitute legal advice. The legal position depends on the individual case and may change with new legislation or case law. For a binding assessment, please consult a qualified lawyer.