SECTION H - WORK OUTS

The concept of the informal 'work out' might be said to be based on a combination of the following elements:

(1) The fact that there is a significant size of debt owed to a number of different creditors (mostly these would be banks or other financial institution creditors) and the present inability of the corporate debtor to service that debt;
(2) The attitude that it may be preferable to negotiate an arrangement for the financial difficulties of the debtor both between the debtor itself and the financiers (and perhaps other lesser creditors) and also between the financiers themselves;
(3) The availability of relatively sophisticated refinancing, security and other commercial techniques that might be employed to alter, re-arrange or restructure the debts of the corporate debtor or the corporate debtor itself;
(4) The sanction that if the negotiation process cannot be started or breaks down there can be relatively swift and effective resort to the application of an insolvency; and
(5) The prospect that there may be a greater benefit for all through the negotiation process than by direct and immediate resort to the insolvency law.

In relation to these elements:

(a) identify which of these elements are appropriate and relevant to this country?

The elements listed at1, 2 and 5 are relevant to Pakistan. Because of the difficulties and delays encountered in recovering overdues and enforcing securities, the Banks tend to resort to achieve "work outs" till every measure fails and Banks have no choice but to file legal proceedings.

(b) which of these elements might be considered absent, ineffectual or of little consequence in this country?

Elements listed at 3 and 4. Excluding a few exceptions, the elements listed at 3 and 4 above are more or less not available.

(c) which of these elements would be viewed as the least persuasive if a work out was contemplated?

The elements listed at 3 and 4. In respect of 4, there is nothing such as a "swift" and "effective" resort to insolvency application under the Pakistani legal system.

(d) are there any other elements that are relevant to this issue in this country in the context of this issue?

Political and other local pressures This is particularly relevant in the case of lenders to under Government control, such as public sector and nationalized banks and DFIs.