arrangement

Private or court-mediated agreement between a debtor and unsecured creditors, under which the creditors agree to settle for a certain fraction of monies owed by the debtor. When it is a voluntary agreement, it is called scheme of arrangement and is governed by the ordinary law of contract, otherwise (if the debtor is insolvent) it is a deed of arrangement which is governed by the relevant statute. The primary objective of an arrangement is avoidance of bankruptcy. See also letter of lenienency.

One useful but fairly uncommon type of contract stipulation is a most-favored-customer clause. Under such an arrangement, no one gets a better price than this customer, or if someone else does then this customer's price drops to that level. This affects future negotiations (it makes things tougher on that customer's competition, and it gives the vendor an excuse not to negotiate with them, if that's what the vendor wants, since its hands are tied.) But it's then easier for that vendors rivals to target its customers, and harder for it to do the reverse. Sometimes this raises the price the vendor can charge, because each customer doesn't negotiate as much, assuming future customers will.

• Are Management's Compensation Plans Aligned with Shareholder Interest?