Meaning
Remedy mechanisms control the access to specific bank accounts designed to receive and hold corporate income for the benefit of secured lenders. Under onshore revenue escrow enforcement the creditor exercises its right to take direct control of the funds after a covenant breach. This move diverts cash flow away from corporate operations to ensure the priority of debt servicing.
Account Restriction
Notification is sent to the depository bank to stop all transfers authorized by the company management. Only signatures from the lender or the court-appointed receiver can unlock the funds. This lockout ensures that the revenue stays within the control of the security holder.
Fund Prioritization
Priority is given to interest payments and the principal reduction defined in the loan agreement. Excess funds can sometimes be released back to the entity for essential daily expenses if a standby budget is agreed. The manager must prove each request for capital meets the survival criteria of the factory.
Operational Buffer
Companies attempt to negotiate the removal of such controls by providing alternative collateral or new equity injections. Maintaining production is the primary argument for releasing the revenue escrow during a restructuring. If the escrow is drained to the bottom the business inevitably faces a full operational shutdown.
