Distressed M&A: Surprises All Around Following a Creditor's Enforcement of a Pledge to Effect Change of Control

When a company defaults on its contractual obligations, its counterparty can agree to not exercise its remedies or forbear in exchange for certain concessions from the defaulting party or its equity holder. One common concession is the pledge of the voting rights held by the equity holder of its membership interests in the defaulting company. The timing and extent of forbearance and an understanding of exactly when the voting rights or proxy can be exercised is critical.