When a company enters financial distress, creditors often brace for the worst: delays, write-downs, or total loss. But the truth is, restructuring doesn’t have to mean sacrificing your position. With a proactive strategy, creditors can significantly improve their recovery outcomes and protect long-term interests.
This practical guide explores how secured, unsecured, institutional, or trade creditors can approach restructuring situations to maximize recoveries, reduce risk, and even help preserve enterprise value.
The Creditor’s Role in Restructuring
Creditors aren’t just passive bystanders in a restructuring; they are often key to its success. Their cooperation (or lack thereof) can determine whether a business stabilizes or slips into liquidation.
There are many types of creditors, including:
- Secured lenders (e.g., banks, asset-based lenders)
- Unsecured creditors (e.g., trade vendors, landlords)
- Bondholders or institutional investors
Each has different rights and priorities, but all share one common goal: to recover as much value as possible while minimizing legal entanglement and operational disruption.
Common Risks Creditors Face
Creditor recoveries are threatened not just by insolvency, but by poor planning, lack of oversight, and fragmented negotiations. The biggest risks include:
- Limited transparency into financial health or restructuring strategy
- Delays in action that allow value to erode
- Uncontrolled asset sales or cash burn
- Subordination to other creditor classes or DIP (debtor-in-possession) financing in bankruptcy
- Lack of coordination with other creditors, weakening negotiation leverage
To avoid these traps, creditors must engage early and strategically.
6 Strategies to Maximize Creditor Recoveries
1. Demand Early and Detailed Financial Disclosure
One of the biggest challenges in distressed scenarios is limited visibility. Creditors should request:
- Up-to-date cash flow forecasts ( )
- Debt maturity schedules and covenant status
- Asset valuations and revenue projections
This data informs your risk exposure and helps you make smarter restructuring decisions.
2. Negotiate Standstill Agreements with Clear Milestones
Before pushing for aggressive collection or legal action, consider a standstill agreement that pauses enforcement in exchange for:
- A committed timeline for the borrower to present a plan
- Temporary limits on asset sales or new debt issuance
- Enhanced financial reporting and board oversight
Done right, this protects value without forcing premature liquidation.
3. Insist on Independent Financial Oversight
A company in distress may lack objectivity or internal capacity to manage a turnaround. Creditors can require:
- Appointment of a Chief Restructuring Officer (CRO)
- Engagement of a to validate plans and monitor cash flow
- Creation of a creditor steering committee
This adds discipline and credibility to the process.
4. Support Viable Restructuring Plans Over Liquidation
While liquidation may seem like the most secure option, it rarely yields the highest recovery. Creditors should evaluate:
- The feasibility of a going concern plan
- Recovery comparisons between reorganization vs. forced sale
- The long-term customer relationship or market impacts
In many cases, a collaborative restructure preserves more value than a wind-down.
5. Secure Collateral Where Possible
Where legally and commercially viable, seek to improve your position:
- Revisit security agreements or request additional collateral
- Explore guarantees from parent entities or owners
- Protect your interests through lien perfection and UCC filings
Even partial collateral coverage can increase leverage and recovery.
6. Monitor Progress and Enforce Accountability
Recovery doesn’t stop once a plan is in place. Creditors should:
- Demand regular updates and KPI dashboards
- Tie continued cooperation to performance benchmarks
- Stay engaged through plan execution and covenant compliance
This ensures momentum is maintained and value erosion is avoided.
How to Measure Recovery Success
Not all successful outcomes mean full repayment, but you can define success by:
- Recovery rate (percentage of original obligation recovered)
- Speed of recovery (how long funds are tied up)
- Total value protected (enterprise value preserved vs. forced liquidation)
- Relationship impact (continued business with the restructured company)
Informed and proactive creditors often fare far better than reactive ones.
When to Involve Restructuring Advisors
Even sophisticated lenders and trade creditors benefit from restructuring professionals who can:
- Analyze plans and financial statements objectively
- Navigate multi-party negotiations
- Facilitate legal, financial, and operational coordination
- Represent creditor interests in formal processes (e.g., committees)
At JACO Advisory Group, we support creditor groups in maximizing recoveries while guiding distressed companies toward sustainable turnaround.
Final Thoughts: Recovery Is a Strategy—Not a Gamble
In restructuring, creditors face a choice: passively wait and hope for repayment or actively engage to shape the outcome. With transparency, coordination, and discipline, you can avoid deep losses and unlock better recovery paths.
Don’t wait for a bankruptcy filing to act.
Start positioning yourself today for maximum return.
