Escrow in restructurings: deposits, sale proceeds and implementation funds

In a restructuring, each step has to be evidenced in documents. Assurances are discounted, representations are tested, and the money side of each step has to be demonstrable rather than promised.

Titanium accepts appointments for standstill deposits, proceeds of distressed asset sales, and restructuring implementation funds, held under segregated arrangements that no creditor and no debtor controls. This note takes the three in the order they tend to arise. Where the payment settles a dispute between parties rather than implementing a collective compromise, the settlement note covers that setting.

How does a standstill deposit work?

A standstill buys time to negotiate. A deposit placed with an independent holder during that period shows that the money exists, has been set aside, and moves only on the documented mechanics. What those mechanics are is for the parties: applied toward the eventual compromise, returned if agreement is not reached by a longstop date, or released in stages as milestones are evidenced. The drafting requirement is the usual one, that each trigger be a document, a date or a joint instruction rather than a state of affairs the agent would have to assess.

Where the proceeds of a distressed sale sit

When assets are sold in a distressed setting, the question is what happens to the proceeds in the interval between completion of the sale and completion of whatever the proceeds are for: a distribution, a compromise, a repayment schedule still in negotiation. The proceeds are held with an independent regulated holder for that interval. The amount is visible, segregated under client money arrangements, and immobilised until the documented conditions are met, which lets a creditor group agree to a sale without simultaneously having to agree everything downstream of it.

What is an implementation fund for?

A compromise usually requires money to move at the moment it takes effect. Funding the implementation amount into a segregated account before the compromise takes effect converts an undertaking to pay into a fund already set aside, released against the documents the parties define: a completion certificate in a stated form, a defined notice from a named party, a date. The agent checks the document against its description. It does not determine whether the compromise has become effective, which is a question the parties’ own documents and advisers answer.

Release mechanics that work in a restructuring

The points in the release conditions note apply here without modification. The triggers should be objective: a named document from a named issuer, a date, or a joint instruction. And the conflicting-instruction position matters more than usual, so it should be drafted rather than assumed: the agent holds, notifies, and continues to hold until it receives a joint instruction or a determination it may act on in the form the agreement specifies.

Distribution to the creditor group

Many restructuring mandates end in payments to a wide creditor or claimant population, and that exercise has its own mechanics, timetable and onboarding load. It is covered in the paying agency note rather than repeated here. Where the same arrangement holds the funds and makes the distribution, the money moves once, which shortens the interval between compromise and payment.

The limit of the agent’s role

Titanium does not advise on the restructuring, assess whether a compromise has become effective, adjudicate creditor entitlements or disputes, or determine whether any milestone or condition has been satisfied. It holds the amounts and releases them in accordance with the applicable agreement and valid authorised instructions, or against documentary evidence expressly specified in that agreement, subject to applicable law and regulatory requirements.

Common questions

Can Titanium act where several creditor classes have a claim on the funds?

Yes. Titanium has no lending or advisory relationship with any party to the transaction.

What triggers can be used in a restructuring?

A named document from a named issuer, a date, or a joint instruction. A trigger that requires the agent to assess a state of affairs is not one it can apply.

What happens if instructions conflict?

The agent holds, notifies both parties, and continues to hold until it receives a joint instruction or a determination it may act on in the form the agreement specifies.