Corporate Turnaround Artistry

Chapter 8Debt Restructuring Out of Court

Bankruptcy law is the anvil on which out‐of‐court restructurings are hammered out. What we just explored in the prior chapter on bankruptcy is the most expensive, uncertain, and feared debt restructuring alternative in the United States – and it's not that bad. You get the full chess board with all the pieces and you have 120 days to make most of the moves. And when complete, you get the world's strongest formal release of debts.

Simplistically, an out‐of‐court restructuring mirrors the bankruptcy process but without all the indignities of court orders and begging permission for simple business decisions; also, without much of the cost, reputational tarnish, or the perceived risks associated with bankruptcy. If run properly, the restructuring will track the bankruptcy process and be above reproach in its methodology. This approach defends the restructuring process from lawsuits during its development and afterward, should someone try to unravel a consensual restructuring.

The biggest risk to an out‐of‐court restructuring is that several creditors (even small ones buried in the debt stack) can band together and declare war on your process. Although bankruptcy issues an automatic stay to collection efforts, there is no similar protection out of court. If you're working out payment arrangements for unsecured creditors to get paid 70% now or 100% over two years, all your vendors will probably support it because they want to keep you as ...