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Informal Workouts and Debt Restructuring

The simplest definition of a Workout is that a Workout is a process for the rescue or resuscitation of a financially distressed company which is supported by its creditors and conducted outside of any formal insolvency proceeding.

The principal aim of a Workout, sometimes referred to as a Debt Restructuring, is to promote a stable environment where a company and its lenders can make decisions on an informed basis. It is based on the assumption of a potentially viable business. The rescue culture is not about supporting unviable businesses. There will inevitably be corporate failures where the appropriate solution lies in a formal process of liquidation.

The Workout process has been more technically defined as:
“ The major financial creditors of an underperforming corporate acting in a coordinated manner to facilitate short term viability and stability, whilst confirmation of the present position and the relative positions of creditors is obtained in a timely and cost effective manner, enabling the available options to be presented, assessed and a way forward agreed”
Source: INSOL Lenders Group March 1997.

A Workout is likely to involve restructuring at many levels to facilitate a return to viability for the company and a reasonable return to creditors or a return to sustainable facility levels for lenders. A Workout will usually involve a:

  • restructuring of the business
  • restructuring of the management
  • capital reorganisation

A Workout is typically considered where a company is underperforming and without the support of creditors, it is likely to fail but where formal insolvency proceedings are likely to lead to a very poor return to creditors or adverse publicity