By: Nitin Jain
An agreed refinancing can fail if an existing creditor acts before the new financing closes. Once enforcement rights arise over pledged assets, one creditor’s action can affect control, trigger rights under another financing arrangement or leave the asset unavailable to the new lender. Defending enforcement action is not the problem but dealing with existing creditor rights, releasing the required security and putting the new financing in place before those rights are exercised. The issue arose for an Indian infrastructure and engineering group facing a substantial holding-company maturity in 2026. We have discussed the group’s long-term assets and refinancing pressures here. [Hyperlink – Refinancing Heavy Infrastructure Debt: Managing Maturity Cliffs, Private Credit and High-Value Collateral].
The Debt Was Quiet, but Growing
The holding company had raised substantial secured debt a few years earlier through zero-coupon instruments.
The financing did not require regular cash-interest payments. The lender’s return accumulated and became payable with the principal at maturity. That reduced cash outflows during the financing period but concentrated the repayment obligation at maturity. By mid-2026, the obligation had reached a materially larger amount than the original borrowing.
The underlying businesses generated cash over much longer periods. Infrastructure assets may require years to generate distributable cash. The debt’s payment date does not move with them. That timing difference also determines when enforcement planning needs to begin. The starting point is not litigation. It is a review of the default triggers, cure periods, notice requirements and security available to each creditor. The review should also establish which rights could become exercisable if the expected refinancing or repayment event is delayed.
Cross-default provisions require the same attention. A cross-default allows trouble under one financing arrangement to activate another lender’s rights. The financing documents therefore need to be reviewed together rather than facility by facility.
At that stage, the company may still be able to negotiate an extension or waiver. It may also renegotiate repayment dates before default. Once the debt becomes immediately payable, the same discussion occurs under greater creditor pressure. An extension or waiver is never assured, but negotiating before enforcement rights are exercised generally leaves more room to structure the repayment.
Asset Sales Do Not Stop the Clock
Selling assets can help reduce debt, but the repayment date does not wait for the sale to finish. The group had already reduced debt through asset sales and an infrastructure-company listing. Those transactions generated substantial proceeds for debt reduction before the refinancing.
But those transactions also showed the difficulty of relying on asset value to meet a fixed repayment date. A valuable asset may require months for valuation, approvals, purchaser diligence and completion. Contractual maturity dates continue approaching during that period.
A company relying on an asset sale needs to account for the period between signing and receipt of the sale proceeds. During that period, the company needs to know which creditors can act, whether any extension has been documented, whether the proceeds are committed, whether another creditor can enforce against the same asset and whether existing security can be released in time for completion.
A standstill may provide some protection during that period. This is an agreement under which participating creditors pause individual enforcement while restructuring is negotiated. It can give the parties time to complete the restructuring without immediate enforcement by those creditors. However, it binds only those covered by its terms. It does not automatically restrain every creditor. Its scope therefore needs to be tested against the full creditor position, including lenders, suppliers and other parties whose contractual or statutory remedies are not covered by the standstill.
When Creditors Stop Moving Together
A refinancing becomes a disputes problem when creditors begin pursuing different outcomes. One lender may support an extension because continued operations preserve value. Another may seek immediate repayment. A secured creditor may look towards collateral. Others may demand additional protection before agreeing to wait.
The total debt figure is not enough. The company needs a creditor map covering each claim, maturity, security interest and enforcement right. It should also capture guarantees, pledged assets, cross-default provisions and any proceedings or notices already in progress.
The review should establish which creditors can act independently and how one enforcement action could affect the others. An enforcement action against a material asset can change the negotiating position of creditors who were not involved in that action.
Enforcement may improve one creditor’s position while reducing the value available to the wider creditor group. The objective is to maintain creditor support without allowing separate enforcement actions to derail the refinancing.It is to understand whether those rights can be coordinated long enough for the refinancing to close.
Any agreement to defer enforcement should be documented and time-bound. The agreement should identify the creditors covered, the actions being suspended and the conditions on which enforcement can resume.It should also specify the position if the refinancing does not close within that period.
A Pledge Is Not Immediate Cash
A lender may have rights over valuable shares and still be unable to turn them into cash immediately. The shares may be subject to transfer restrictions, approvals or other steps before they can be sold.
Here, the financing was supported by significant group investments, including pledged shares. A pledge gives the lender rights over those shares if the agreed conditions are met, but it does not mean the lender can necessarily sell them straight away.
Valuation provisions also matter, particularly where other creditors have rights over the same asset or enforcement could trigger defaults elsewhere in the group.
A lender may therefore hold valid security without being able to realise it immediately. The borrower may find that enforcement threatens control of an important business. A dispute over the pledge can therefore affect the refinancing as a whole. What matters is not only whether the security is legally enforceable, but whether the documents provide a workable route from enforcement to realisation.
If enforcement is threatened, the relevant documents need to be reviewed immediately. That review should establish whether a default has occurred, whether notice requirements were satisfied, whether any waiver or standstill applies, whether cure periods remain open and whether any subsequent agreement has altered the lender’s enforcement rights.
An interim injunction may, in appropriate circumstances, prevent the threatened enforcement action from proceeding while the dispute is considered. It is not automatic. Whether such relief is available will depend on the contractual terms, the threatened enforcement and the circumstances giving rise to the application. The court will assess the contractual and factual circumstances in deciding whether an injunction is warranted and what relief, if any, should be granted.
What Happens When One Creditor Moves First
Once one creditor begins enforcement, the position of every other creditor can change.
For example, enforcement may reduce the value of an asset, change who controls a business or leave less security available to another lender. It may also create a default under another loan or cause the new lender to reconsider the refinancing.
One creditor’s action can affect much more than the debt it is trying to recover.
The company therefore needs to establish the sequence in which creditors can act. That means identifying which creditor can issue the first effective notice, when each cure period expires, which assets can be enforced against first and whether enforcement would disrupt the operating businesses.
The aim is not to prevent creditors from exercising valid rights. It is to determine whether those rights can be coordinated long enough for the refinancing to close. That requires identifying which remedies are immediately available, which require further contractual steps and which require court or tribunal intervention.
A common standstill may be appropriate, but creditors outside that arrangement may require separate bilateral agreements. An agreement supported by most lenders does not necessarily bind a creditor who never accepted it. The restructuring therefore needs to address non-participating creditors expressly. A broader agreement among lenders does not prevent a creditor outside that agreement from enforcing its rights.
The Refinancing Must Be More Than a Promise
A lender saying that it is interested in refinancing the company is not the same as having the money ready. As the repayment date gets closer, that difference becomes critical.
Creditors will want to know who is providing the funds, which conditions remain outstanding and when the money will actually be available. They will also examine what security the new lenders require. An apparently agreed refinancing can still fail to close if a required approval, security release or funding condition remains unresolved.
That can reopen negotiations with the existing lenders. Existing security may need to be released. New security may need to be created. In some cases, one asset may be released and replaced with another. Any substitution requires agreement on value, priority and documentation. They also need to establish when the replacement security becomes effective and whether the existing lender remains protected throughout the transition.
The mechanics of closing can therefore become part of the disputes strategy. Existing lenders may require repayment before releasing their security, while new lenders may require their security to be effective before they fund. Those steps therefore need to occur in the correct sequence.
Without that coordination, a commercially agreed refinancing can still miss its deadline. The closer the maturity date, the less room there is to resolve a failed closing mechanic without triggering the underlying creditor remedies.
What the Refinancing Achieved
The refinancing addressed the immediate maturity by replacing the near-term repayment obligation with new financing. n. But finding a new lender was only one part of getting the transaction done.
The old debt still had to be repaid or discharged, existing security had to be released or replaced and the rights of the existing lenders had to be dealt with. The new financing could only work if all of those steps fitted together.
The transaction also shows why refinancing and disputes work may need to be considered together. As enforcement approaches, the time available to negotiate becomes increasingly important. Reviewing creditor rights and the enforcement sequence early gives the company more time to coordinate them with the proposed refinancing.
Agreeing the refinancing does not mean the refinancing is complete. Existing creditor rights may still need to be dealt with, security may need to be released and new security put in place, and the funding conditions may still need to be satisfied.
The question is not only whether the next payment can be made. It is how much room remains to complete the refinancing before one creditor’s enforcement action changes the position of the others. Disputes planning therefore begins before the first proceeding is filed.That means preserving evidence, reviewing the security package, documenting waivers and standstills, and dealing with creditor rights while the refinancing can still be completed.
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