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ACCA Strategic Professional · Advanced Financial Management · Financial reconstruction

A distressed group wishes to avoid liquidation and simply reduce its debt burden without a formal insolvency process. Which option is an example of an out-of-court voluntary arrangement with creditors?

A negotiated debt-for-equity swap with lenders is an out-of-court reconstruction option, because it restructures the capital by agreement without entering a formal insolvency process such as compulsory liquidation or receivership.

  1. AA compulsory winding up ordered by the court on a creditor's petition
  2. BA debt-for-equity swap negotiated with lenders to avoid formal insolvencyCorrect
  3. CThe appointment of a receiver by a floating-charge holder
  4. DA strike-off of the company from the register

Explanation

A negotiated debt-for-equity swap or similar consensual restructuring avoids a formal process. A compulsory winding up and receivership are enforcement or insolvency routes, and strike-off is not a debt restructuring.

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