TMA Crisis Management 3

Question 1

What is 'succession planning' important for in a crisis situation?

Accepted Answer

Ensuring continuity of leadership if key executives depart during the turnaround

Answer

In a crisis, unexpected executive departures are common; having succession plans ensures leadership continuity so the turnaround is not derailed by the loss of key individuals.

Question 2

What is a 'carve-out' in the context of DIP financing?

Accepted Answer

A carve-out from the DIP lender's lien allowing payment of professional fees and expenses

Answer

A carve-out provision in a DIP loan allows certain administrative expenses — including professional fees for restructuring advisors and attorneys — to be paid ahead of the DIP lender's claim.

Question 3

What does 'insolvency' mean in a legal context?

Accepted Answer

A company unable to pay debts as they come due or whose liabilities exceed assets

Answer

Legal insolvency typically means either a company cannot pay debts as they come due (cash flow insolvency) or its total liabilities exceed its total assets (balance sheet insolvency).

Question 4

What is a 'wind-down' in turnaround terminology?

Accepted Answer

An orderly process of ceasing operations and liquidating a company's assets

Answer

A wind-down is the structured process of ceasing business operations, selling or disposing of assets, settling liabilities, and distributing remaining proceeds to creditors and stakeholders.

Question 5

What is the role of an 'independent director' during a financial crisis?

Accepted Answer

To provide unbiased oversight and protect the interests of all stakeholders, including creditors

Answer

Independent directors provide objective governance oversight during a crisis, protecting against conflicts of interest between management, equity holders, and creditors.

TMA - Turnaround Management Association Practice Test

TMA - Turnaround Management Association Practice Test

TMA Crisis Management 3