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Restructuring and Workout
When a business relationship require changes, the parties typically seek a negotiated solution before heading for the courts or arbitration process. Changes may be needed to overcome “failures” that might arise for many reasons. Misunderstandings that bloom into accusations are often due to fault on both sides. The contract might not have contemplated a particular scenario.
Restructuring may be needed, even where there is no “failure,” due to major changes in either party’s business or operations. Often, a merger or acquisition, or a change in senior management, results in a radical review that questions the value of the relationship and even the suitability of continuing with the particular form of sourcing activities.
Possible tools for a workout cover the full range of possible economic and legal relations, such as:
Legal Value of a Workout
A “workout” or “restructuring” can be absolute or conditional. In an “absolute” restructuring, the parties put their past differences to rest and may exchange limited releases of claims. In a conditional restructuring, the release of claims is contingent upon completion of new performance or payment obligations.
A new team would apply a de novo approach, examining all original assumptions and documentation. Generally a wholly new team might be used because all the original participants were not available. Reliance on a wholly new team results in a loss of the original “intent” behind the relationship but may be appropriate, if supported by suitable top-level executives, to remove personality conflicts.
For a successful restructuring, the “workout” or “restructuring” team on each side needs experienced business executives, managers, financial analysts, relationship managers and legal advisors.
If you have questions about this process, please feel free to contact us.
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