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Benefits of Out-of-Court Workouts
http://www.bankruptcy-alternative.com
by Michael Joncich, CMA
Reorganization of debt through an out-of-court workout offers significant benefits to an insolvent company and its creditors. The adjacent article by Richard Ruszat, Esq., provides a concise description of how the process compares to a Chapter 11 Bankruptcy proceeding.
CMA, through its Adjustment Bureau, has facilitated hundreds of successful workouts. Over the years, we developed several ways to ensure that creditors get equal treatment throughout the steps of negotiation, plan approval and repayment of claims.
The first meeting between a debtor and its creditors is frequently hosted by CMA. A CMA estate manager with experience with workouts serves as the facilitator for the initial dialog that leads to the formation of a creditors’ committee. CMA communicates to the full creditor body the results of the first meeting and provides periodic bulletins on the progress toward a negotiated repayment plan. CMA’s involvement as an independent third-party facilitator and communicator ensures that creditors are treated fairly and equally.
Equal treatment of creditors is also the reason for the debtor to grant creditors generally a blanket security interest in its assets. In exchange for creditor observation of a moratorium on debt collection activities while a repayment plan is negotiated, frequently a debtor will grant the security interest to CMA to hold in trust for creditors. CMA will exercise its right to file a third-party claim to defeat any attempts to attach the debtor’s assets, thus preserving the assets and preventing any one creditor from getting paid before others.
Finally, CMA often serves as claims agent and disbursing agent under a workout plan. After the debtor and creditors committee negotiates the terms of a repayment scheme, a copy of the plan is sent to creditors with a ballot for creditors to return to CMA. Ballots are tabulated. When creditors holding the requisite amount of debt in the aggregate consent to the plan, the debtor sends the plan funds to CMA. Pro rata distributions to creditors are calculated and issued by CMA.
The involvement of a third-party administrator in out-of-court workouts lends credibility to the process and gives creditors the comfort that they will be treated fairly and equitably.
[PRINTER FRIENDLY VERSION]
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