Workouts

CREDITOR WORKOUTS

Bankruptcy proceedings sometimes do not provide simple solutions to complex problems faced by business debtors.

Whether the debt is mostly business debt or consumer debt, there are circumstances where a bankruptcy may not be the debtor’s best alternative.  The expense, duration, risk and publicity of a chapter 11 mean it (or business liquidation under chapter 7) should be considered as a last resort.

Creditor composition or creditor workout is a consensual arrangement between the debtor and creditors to settle the debtor’s obligations.  Workouts can be used in a business or consumer case.  Because this alternative takes place without court supervision, creditors must be fully informed and willing to cooperate with the debtor without litigation.  A composition will be binding only on creditors who elect to be bound.  Non-assenting creditors could force the business debtor to file for bankruptcy relief.  In order to be successful, a threshold in terms of numbers of creditors assenting –or amount of debt contractually committed –must be met.  Compositions or workouts can provide for one or more payments to creditors who forbear from legal action so long as the company complies with certain financial disclosures and operational benchmarks.  The workout agreement could provide for the reduction of debt, the orderly liquidation of assets, financial restructuring, or continued operation of the company under certain conditions.

In most cases, creditor workouts result in creditors receiving larger, more timely distributions than they would receive through formal bankruptcy proceedings.

Richard E. Weltman, Esq. and Michael L. Moskowitz, Esq. are co-founding partners of Weltman & Moskowitz, and concentrate their practice on business workouts, creditor and debtor rights, and bankruptcy and commercial litigation.

For further information on this topic or to discuss your case, please contact Richard E. Weltman or Michael L. Moskowitz by telephone, fax or email.

For further information on this topic or to discuss your case, please contact Richard E. Weltman or Michael L. Moskowitz by telephone, fax or email.

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