Credit defaults: practical tips when pressing the accelerator
31 March 2023
2 min read
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In this article, experts from our Restructuring and Litigation groups consider the practical steps and considerations when a creditor is faced with a potential event of default under their contracts. We also assess the consequences for a creditor in taking enforcement action in reliance on an EoD that has not actually occurred, cannot be relied on, or is disputed.
For those short on time, a quick summary of the key points in the article is below.
- It is generally safer to rely on “objective” event of defaults (EODs) such as failure to pay rather than subjective EODs such as material adverse change and, where possible, to rely on multiple EODs.
- Send a reservation of rights notice and avoid any express or implicit suggestion that the agreement is being affirmed or the EOD (or other rights) waived.
- Take acceleration and/or enforcement action only when you are confident that at least one relevant EOD has occurred and (if required) is continuing.
- Strictly follow all applicable notification requirements and operate on the assumption that the default could give rise to litigation as part of which the creditor’s actions and communications may be closely scrutinised.
This article was initially published in the March 2023 edition of Butterworths Journal of International Banking and Financial Law.
If this topic is of interest, for further information please also watch the author’s webinar that is available here (free registration required).