Whenever possible, a reasonable solution outside of formal proceedings in the Bankruptcy Court, called an “out-of-court workout,” is preferable, in order to avoid the delay, publicity, uncertainty and cost of a formal bankruptcy case. In a successful out-of-court workout, the outcomes for both the debtor and its creditors are intended to be demonstrably better than formal proceedings, in terms of timing, costs, recoveries and certainty.
The objective of an out-of-court workout is to achieve agreement among the company and creditors on a restructuring of debts and survival of the company and its enterprise. To reach that objective, the parties need to compare an informal process to the likely outcomes of an alternative chapter 11 or chapter 7 bankruptcy case. Cash flow issues, liquidity, excessive debt overhang and projected profitability must be addressed in order ensure that the consensual restructuring and payment plan can be accomplished without need for further insolvency problems.
Through this alternative to bankruptcy, parties enter a contractual agreement to resolve debt obligations and progress towards financial stability. Despite the informal nature of workouts, they are intended to reach legally binding commitments of all parties, and it is paramount that both debtors and creditors retain experienced counsel to advise them about their respective rights and remedies, and the benefits that the process offers over more formal insolvency proceedings. Meyers Law Group, P.C. has led clients through many such workouts, with success in multiple cases.