Where Business And Law Come Together

When can standstill agreements help resolve a financial dispute?

On Behalf of | May 20, 2024 | Dispute Resolution

In business, disagreements can halt progress. A standstill or lock-up agreement can be a valuable tool in such situations. It is a legal contract that pauses specific actions or activities between parties for a set period, allowing for reassessment of positions.

Commonly used in mergers, joint ventures or IP disputes, these agreements benefit both sides. The initiating party can prevent actions harming their financial interests, while the other party gains negotiation security and stability. When is the right time to consider a standstill agreement?

Avoiding litigation costs

One of the primary reasons to consider a standstill agreement is to avoid the substantial costs associated with litigation. Legal fees, court tolls and the potential for protracted battles can quickly add up, draining resources from both parties. A standstill agreement allows for a temporary pause, giving parties a chance to negotiate a settlement or find an alternative resolution. This can potentially save significant sums of money.

Preserving legal rights

Entering into a standstill agreement does not mean forfeiting legal rights. In fact, it is a way for parties to preserve their legal positions while exploring other options. This can be particularly advantageous for business parties who are uncertain about the potential outcome of litigation or who wish to avoid the risk of an unfavorable ruling.

Exploring settlement opportunities

A standstill agreement provides reasonable timing for parties to negotiate a settlement. Without the looming threat of immediate legal action, parties can engage in more productive discussions and explore creative solutions to their dispute. This increased flexibility may lead to mutually beneficial outcomes and preserve business relationships.

Avoiding public scrutiny

In some cases, parties may wish to keep the details of their dispute private. A standstill agreement can serve this purpose effectively by including confidentiality clauses and helping ensure that the matter remains out of the public eye.

Buying time for strategic planning

Sometimes, parties may need additional time to assess their legal position, gather evidence or develop a comprehensive legal strategy. Again, a standstill agreement can provide this much-needed breathing room to allow the parties to prepare thoroughly before proceeding with legal action or engaging in settlement negotiations.

While litigation may be necessary in some cases, a standstill agreement can be a valuable legal tool for resolving disputes without the immediate escalation to legal proceedings. By providing a temporary pause in hostilities, they open doors for more productive communication and out-of-court settlements. Remember, consulting with an experienced legal team when crafting or entering into a standstill agreement can help ensure optimal results.