What is an out-of-court workout, and can a company license data during one?
An out-of-court workout is a private agreement in which a struggling company and its lenders or other creditors restructure debt, by extending maturities, waiving covenants or exchanging debt for equity, without filing for bankruptcy. With no court involved, the board and the lenders' consent rights decide whether the company can sign new contracts such as a data license.
What an out-of-court workout is
An out-of-court workout is a private, negotiated restructuring between a financially stressed company and its lenders or other creditors. The parties change the terms of existing obligations, for example by extending maturities, waiving or resetting covenants, deferring interest or swapping debt for equity, without a bankruptcy filing.
Because no court supervises a workout, everything rests on contract. The deal binds only the parties that sign it, and the company stays under the control of its board and management, subject to whatever consent rights its lenders hold. Textbook treatments group workouts with other non-bankruptcy alternatives: a composition, in which creditors agree to accept less than full payment, sits alongside assignments for the benefit of creditors and receiverships (The Law of Commercial Transactions).
The main workout tools
| Tool | What it does | Typical trade-off |
|---|---|---|
| Forbearance agreement | Lenders agree not to enforce remedies for a period | Milestones, extra reporting and fees for the borrower |
| Amendment and waiver | Waives a breach or resets covenants | Tighter terms or higher pricing elsewhere |
| Amend and extend | Pushes out maturities | Higher rate or a partial paydown |
| Debt-for-equity exchange | Converts debt into ownership | Existing owners are diluted or replaced |
| New money | Adds liquidity from lenders or the sponsor | Priority and control rights for the new money |
| Trade creditor composition | Vendors accept less, or accept it later | Needs broad creditor agreement |
| Non-core asset sales | Raise cash from assets outside the core business | Usually needs lender consent and lien releases |
How a workout typically runs
- Warning sign: a covenant breach, a missed payment or a weak liquidity forecast prompts the company to approach its lenders.
- Advisors and information: the company hires restructuring counsel and a financial advisor or CRO, and the lenders hire their own. A rolling 13-week cash flow becomes the shared source of truth.
- Standstill: a forbearance agreement buys time in exchange for milestones, such as delivering a business plan or launching a sale process.
- Term sheet: the parties negotiate the restructured terms and who contributes what.
- Documentation and closing: amendments, exchange documents and any new equity are signed.
- Monitoring: the company reports against the new terms; if milestones slip, the next stop may be a court process.
Workout vs bankruptcy
| Feature | Out-of-court workout | Bankruptcy case |
|---|---|---|
| Supervision | None beyond the contracts | A bankruptcy court oversees major decisions |
| Who must agree | Each creditor whose rights change | Set by the bankruptcy process, which has tools for holdouts |
| Cost and visibility | Usually lower and private | Usually higher, with public court filings |
| Signing new contracts | The board decides, within lender consent rights | Larger or unusual transactions go through the court |
| Speed | Can move quickly when creditors are aligned | Follows court timetables |
The sibling explainer on a liquidating Chapter 11 covers what changes once a court is involved.
Who decides whether a company can sign a data license during a workout
The board decides, but only within the limits its financing documents set. Before anyone discusses an exclusive license, check these sources of consent rights:
| Document | What to look for | Why it matters for a data license |
|---|---|---|
| Credit agreement | Covenants on asset dispositions, IP licenses and new material contracts | An exclusive license may need lender consent |
| Security agreement | Liens on general intangibles, IP and data | The records may be part of the lenders' collateral |
| Forbearance agreement | Added restrictions, milestones and approval rights | New contracts may need sign-off during the standstill |
| Intercreditor agreement | Which lender group controls consents | Shows whose approval actually counts |
| Shareholder or sponsor agreements | Board and investor approval thresholds | The sponsor may also need to approve |
| Client contracts | Ownership and confidentiality of client data | Decides which records the company can license at all |
Expect lenders to ask how a license affects collateral value and the timing of cash. Bring counsel in before the company signs anything.
Why a data license is not bridge liquidity
A license can add value during a workout, but it does not close a near-term cash gap. The sequence takes time: SourceX qualifies the company, the company completes a data inventory, price and terms are agreed, buyers review the opportunity (typically within about two weeks once a company is deal-ready), and the agreement is signed before data is prepared and delivered. Payment is a one-time amount, typically within about 60 days of invoicing once the buyer selects the data.
For the 13-week cash flow, that means no license receipts until there is a signed agreement and an invoice. Present it to lenders as possible upside in the business plan, not as forbearance-period liquidity. The company keeps ownership because the data is licensed, not sold, but an exclusive license still limits what the data is worth to anyone else during its term, so lenders will want to see it.
What it means for a restructuring professional
Workouts usually come with cost cuts, and software subscriptions are an easy target. Before a system is cancelled, ask whether its history should be exported first. Preserved records keep options open whether the company recovers, is sold or moves into a court case or a state-law assignment for the benefit of creditors, which statutes such as Florida's Chapter 727 govern, with procedures that vary by state.
Introduce the company only with the board's and sponsor's agreement, and share basic fit information only. A good candidate is a US business with 50+ full-time employees at peak (contractors excluded), years of documented operations, rights to its own records and someone authorized to sign; the who qualifies page sets out the baseline and the company fit checker gives a quick, non-binding read. Interim executives, such as a fractional COO, often know the systems best.
Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company, payable only after the buyer pays and SourceX receives its fee; no reward is guaranteed. Check your engagement letter and professional rules on outside compensation first, and see why referral programs ask for a W-9 before you are paid.
This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting.
Next step
Add one records line to the workout information request: systems, years of history and who can export each one. If the company fits, register as a partner and introduce the CEO or CFO once the board agrees.
- Step 1Share your linkSend your personal link to a company you know.
- Step 2Company appliesThe company applies itself at /apply.
- Step 3Buyer selects and paysThe buyer selects and pays for the data and SourceX receives its fee.
- Step 4You get your rewardYour share of SourceX fees becomes payable.
Common questions
What is a forbearance agreement?
A forbearance agreement is a contract in which lenders agree not to exercise their remedies for an existing default for a set period, while the borrower meets conditions such as milestones, extra reporting, fees or tighter cash controls. It does not cure the default; it buys time to negotiate a longer-term fix or to run a sale or refinancing process.
Is an out-of-court workout better than filing for bankruptcy?
It is usually cheaper, faster and private, and management keeps running the business. The drawback is that it needs the agreement of every creditor whose rights change, so a single holdout can stall it. When creditors cannot agree, or the company needs protections only a court can provide, a court process may become the better route. Counsel should weigh the options.
Can a company sign an exclusive data license during a forbearance period?
Possibly, but only after checking the credit agreement, the security documents and the forbearance agreement itself, which often adds restrictions on new contracts and asset transactions. An exclusive license may need lender consent. Raise it with lenders early, and treat any license as upside in the plan rather than as liquidity for the forbearance period.
What happens if a workout fails?
The company and its creditors move to another path: a sale, a state-law process such as an assignment for the benefit of creditors or a receivership, or a bankruptcy filing. Records preserved during the workout remain available to whoever controls the assets next, which keeps both recovery and licensing options open.
Who leads a workout on the company's side?
Typically the CEO and CFO, supported by restructuring counsel and a financial advisor, sometimes with a chief restructuring officer appointed at the lenders' request. The board approves the final terms. On the lender side, an agent or a steering committee usually negotiates for the group, with its own legal and financial advisors.
Related pages
Free resources
- PDF bank statement to CSV converter — Turn Chase, Bank of America or Wells Fargo PDF statements into CSV, privately in your browser.
- Client data licensing eligibility checker — A transparent preliminary screen for one company.
- Enterprise value calculator — Enterprise value from equity value, debt and cash.
- All free tools · MCP resource center
By SourceX Partnerships Team · Published 2026-10-09 · Updated 2026-10-09
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