Question

What type of arrangement exists when creditors work directly with management to establish a plan for returning the organization to a sound financial basis, such as by restructuring some of the debt?

Answer 1

The type of arrangement that exists when creditors work directly with management to establish a plan for returning the organization to a sound financial basis is called financial restructuring. It involves renegotiating the terms of the debt with creditors.

Step-by-step explanation:

The type of arrangement that exists when creditors work directly with management to establish a plan for returning the organization to a sound financial basis, such as by restructuring some of the debt, is called financial restructuring. Financial restructuring involves renegotiating the terms of the debt with creditors, such as extending the repayment period or reducing interest rates, to alleviate the financial burden on the organization.

For example, if a company is struggling to meet its debt obligations, it may work with creditors to develop a repayment plan that allows the organization to recover and become financially stable. This could involve converting some debt into equity, which means creditors become part-owners of the company.