The Role of Out-of-Court Restructuring in Corporate Distressed Asset Disposal

I. What Is Out-of-Court Restructuring?
Out-of-court restructuring refers to a debt restructuring process that an enterprise advances through independent negotiation with creditors, capital contributors, investors, and other stakeholders outside judicial proceedings, on the basis of equality and voluntariness. It typically encompasses debt extension, interest reduction, debt-to-equity conversion, asset disposal, and the introduction of investors, ultimately producing a restructuring agreement that is contractually binding on the participating parties.
Viewed from the perspective of distressed asset disposal, out-of-court restructuring is in essence a market-based means by which creditors achieve the recovery or conversion of their claims through commercial negotiation: rather than passively waiting for the enterprise to default and then pursuing judicial proceedings, creditors take the initiative to participate in designing the restructuring plan—converting distressed claims into assets capable of sustainable recovery through extension, interest reduction, and debt-to-equity conversion, or introducing strategic investors—thereby achieving a genuine clearing of distressed assets.
Out-of-court restructuring is a purely market-based commercial negotiation mechanism. It involves no participation by a people's court and does not enter any judicial proceeding, and the agreement reached is binding only on the participating parties as a matter of contract. Out-of-court restructuring is not a preliminary procedure to judicial reorganization, but an independent path.
II. The Disposal Dilemma Behind Trillion-Yuan Distressed Assets
According to data from the National Financial Regulatory Administration, as of the end of the fourth quarter of 2025, the outstanding balance of non-performing loans of commercial banks stood at RMB 3.5 trillion, with a non-performing loan ratio of 1.50%; over the course of 2024, the banking sector disposed of RMB 3.8 trillion in distressed assets, the highest figure on record.
Behind the non-performing loans on banks' books are, as often as not, enterprises whose operations have fallen into difficulty. Many enterprises fail to initiate restructuring promptly at the early stage when cash flow is impaired, and only move toward bankruptcy once they are in full distress, missing the optimal window for rescue. Although traditional paths—litigation to recover claims, compulsory enforcement, and bankruptcy liquidation—enjoy ample legal safeguards, judicial proceedings are lengthy and costly, and liquidation frequently results in severe asset depreciation, greatly diminishing the effectiveness of creditors' distressed asset disposal.
Against this backdrop, out-of-court restructuring—a means of disposal that intervenes earlier and is more flexible and efficient—is attracting growing attention: it is not only a rescue mechanism for distressed enterprises but also an important path for creditors to resolve distressed assets.
III. Core Advantages of Out-of-Court Restructuring
Flexible procedures and tailored plans. There is no need to follow statutory application, review, and voting procedures; plans involving extension, interest reduction, and debt-to-equity conversion can be formulated flexibly according to the enterprise's actual circumstances, striking a balance between creditor recovery and the enterprise's continued operation. For creditors, the recovery plan for a distressed claim can be tailor-made rather than being shoehorned into a uniform statutory order of priority.
Strong confidentiality and protection of corporate reputation. Because no judicial proceeding is entered, no public disclosure is required, which avoids the enterprise being labeled "bankrupt" and prevents secondary risks such as loan recalls and contract terminations. For the enterprise, this preserves the foundation of its operations; for creditors, it likewise avoids further asset depreciation and a persistently declining recovery rate caused by the collapse of the enterprise's reputation.
Preservation of the enterprise's core value. Through resource integration, core competitiveness—such as technology patents, brand reputation, and customer resources—is preserved, avoiding the shock that bankruptcy proceedings inflict on an enterprise. The enterprise's continued operation means sustained debt-servicing capacity, and creditors' recovery expectations are far higher than the residual value distributed in a liquidation scenario.
IV. Practical Examples
A commercial real estate case in Shanghai — exploring the linkage between out-of-court restructuring and pre-reorganization. A commercial real estate enterprise in Shanghai, burdened with debts of several billion yuan, faced frequent loan defaults and litigation and enforcement actions, giving rise to a major debt crisis. In September 2024, the enterprise applied to the North Bund Enterprise Out-of-Court Restructuring Center for out-of-court restructuring and appointed a professional institution to serve as the "enterprise restructuring officer." It conducted multiple rounds of communication with major creditors and, drawing on an "investor pool," connected with strategic investors; over a period of five months it completed a debt review and signed restructuring agreements with more than two-thirds of its creditors.
Thereafter, because some financial creditors were unable to sign the restructuring agreement, the enterprise linked the results of the out-of-court restructuring to pre-reorganization proceedings and ultimately entered judicial reorganization; in May 2025, the court ruled to approve the reorganization plan. The case presents in full the progressive path of "out-of-court restructuring—pre-reorganization—judicial reorganization": most of the groundwork was completed out of court, while judicial proceedings resolved the binding-force problem posed by a minority of dissenting creditors. For creditors, effective negotiation at the out-of-court stage substantially raised the overall recovery rate and prevented assets from depreciating continuously during lengthy judicial proceedings.
V. Outlook
The core value of out-of-court restructuring in distressed asset disposal lies in "early intervention"—moving the point in time at which corporate risk is addressed further forward, initiating rescue while the enterprise still has operational value, so that creditors can achieve recovery before assets depreciate severely, markedly improving the outcome of distressed asset disposal.
As a purely market-based mechanism, out-of-court restructuring does not rely on judicial coercive force; its effectiveness depends on the foundation of trust and the willingness to negotiate among the participating parties, and it also requires the matchmaking support of professional platforms. In recent years, public service platforms characterized by "government providing the stage, the market playing the leading role, and the judiciary providing support" have been explored across China, providing matchmaking support for out-of-court restructuring through the assembly of professional resources such as investor pools and restructuring officer pools. As market participants become increasingly diverse and the professional service system gradually improves, the institutional environment for out-of-court restructuring is continuously being optimized.
Out-of-court restructuring is neither an appendage of bankruptcy proceedings nor a preliminary step to judicial reorganization. For distressed enterprises, it is a channel for market-based self-rescue; for creditors, it is a tool for efficiently resolving distressed assets. Used well, this path may spare many distressed enterprises from having to take the step of bankruptcy.