Corporate workout refers to financial rescue of a firm that is outside formal
bankruptcy and
insolvency
In accounting, insolvency is the state of being unable to pay the debts, by a person or company (debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet in ...
law. Also known as out-of-court debt restructuring, corporate workout practices aim to remedy or avoid
foreclosure
Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
Formally, a mort ...
and bankruptcy.
[Brown, Bowman, Brian Nordwall, and Michael L. Ashner. "Corporate, Securities and Banking Law Aspects of Workouts." U. Miami L. Rev. 32 (1977).] The debtors, creditors as well as the main shareholder and bondholders voluntarily participate in the workouts in order to make rearrangements concerning financial investments and rescheduling and restructuring debt. As a way of response to corporate crisis, corporate workout arrangements were widely seen in the aftermath of the
Asian financial crisis in 1997.
See also
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Restructuring
Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs. Other reasons ...
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Debt restructuring
Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can contin ...
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Compromise agreement
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Creditor
A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...
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Debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The d ...
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Insolvency
In accounting, insolvency is the state of being unable to pay the debts, by a person or company (debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet in ...
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Voluntary redundancy
Voluntary redundancy (VR) is a financial incentive offered by an organisation to encourage employees to voluntarily resign, typically in downsizing or restructuring situations. The purpose is to avoid compulsory redundancies or layoffs.
Reasons
A ...
References
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Further reading
*Low, Linda. "Asian crisis, corporate and financial restructuring, and transformation of traditional Chinese enterprises." R''ethinking Chinese Transnational Enterprises: Cultural Affinity and Business Strategies'' 7 (2002): 240.
*Mako, William P. "Emerging-Market and Crisis Applications for Out-of-Court Workouts: Lessons from East Asia." ''Corporate Restructuring'' (2005): 99.
Debt
Restructuring