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| SECTION H - WORK OUTS |
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The concept of the informal ‘work out’ might be said to be based
on a combination of the following elements:
- the fact
that there is a significant size of debt owed to a number
of different creditors (mostly these would be bank or other
financial institution creditors) and the present inability
of the corporate debtor to service that debt;
- 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;
- the availability of relatively sophisticated
refinancing, security and other commercial techniques that
might be employed to alter, re-arrange or re-structure the
debts of the corporate debtor or the corporate debtor itself;
- 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 law;
and
- 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:
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(a) identify which of these elements are appropriate and relevant
to this economy;
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The elements listed at 1,2 and 5 are relevant to Pakistan.
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(b) which of these elements might be considered absent, ineffectual
or of little consequence in this economy?
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Elements listed at 3 and 4.
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(c) which of these elements would be viewed as the least persuasive
if a work out was contemplated?
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Elements listed at 3 and 4.
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(d) are there any other elements that are relevant to this
issue in this economy?
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Political pressures for a negotiated settlement. This
is particularly relevant in the case of lenders subject to Government
control such as public sector banks and DFIs.
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