Loans and Mortgage Tips

There is normally considerable uncertainty and instability surrounding a company experiencing financial difficulties. This makes an accurate assessment of its position and prospects difficult. Reaching agreement on a course of action becomes problematic.

Insolvency legislation is aimed at overcoming such problems. The key challenge for policy-makers in this area is to design a legal and regulatory framework that meets two key objectives:

• To identify and rescue those companies that can and should be rehabilitated.
• To liquidate efficiently those companies that do not have a viable future.

In reality, various shortcomings associated with statutory frameworks, highlighted later in this chapter, create difficulties in meeting these objectives. Rescuing commercially viable companies within a statutory framework can be particularly difficult. Failure of such companies causes unnecessary losses among their stakeholders and for the economy as a whole.

Many of the drawbacks of rescuing companies within a statutory framework can be avoided if a company’s stakeholders, and in particular its creditors (who are usually the interest group most affected) can assess a company’s commercial viability and agree a financial restructuring without recourse to the courts. Loan workouts, which are essentially financial restructurings agreed in an out-of-court process, can therefore be
an effective tool for corporate rescues.