TMA Certified Turnaround Professional (CTP) Exam — Questions and Answers

Question 1: What is a 'sale-leaseback' transaction and how does it generate liquidity for a distressed company?

A company sells accounts receivable and leases them back from a factor
A company sells a fixed asset to a buyer and simultaneously enters a lease to continue using the asset, receiving immediate cash proceeds (Correct answer)
A company transfers its lease obligations to a third party to reduce fixed costs
A company leases an asset before purchasing it, deferring the cash outflow

Correct answer: A company sells a fixed asset to a buyer and simultaneously enters a lease to continue using the asset, receiving immediate cash proceeds

In a sale-leaseback, the company monetizes owned real estate or equipment by selling it to an investor and leasing it back, converting an illiquid asset into immediate cash while retaining operational use of the asset.

Question 2: What is a 'lender steering committee' in a restructuring process?

A government body overseeing bank lending
A group of major creditors who coordinate negotiations with the distressed company (Correct answer)
A committee that approves DIP financing terms
The company's board finance committee

Correct answer: A group of major creditors who coordinate negotiations with the distressed company

A lender steering committee is formed by the largest creditors to coordinate their negotiating position and communicate efficiently with the distressed company's management.

Question 3: What is a 'proof of claim' in a bankruptcy proceeding?

A formal document filed by a creditor asserting the amount owed to them by the debtor (Correct answer)
A court document proving insolvency
A document filed by equity holders to claim assets
A management report on company viability

Correct answer: A formal document filed by a creditor asserting the amount owed to them by the debtor

A proof of claim is filed by creditors in a bankruptcy case to formally assert the amount they are owed by the debtor and establish their right to participate in distributions.

Question 4: What is the role of an 'independent director' during a financial crisis?

To negotiate directly with lenders on behalf of management
To conduct the external audit
To provide unbiased oversight and protect the interests of all stakeholders, including creditors (Correct answer)
To replace the CEO immediately

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

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

Question 5: What are 'executory contracts' in a Chapter 11 bankruptcy?

Contracts signed by the CEO during bankruptcy
Contracts with government agencies only
Contracts where material obligations remain on both sides, which the debtor can assume or reject (Correct answer)
Employment contracts for senior management

Correct answer: Contracts where material obligations remain on both sides, which the debtor can assume or reject

Executory contracts are agreements where both parties still have material performance obligations; a Chapter 11 debtor can assume (keep) or reject (breach) these contracts to optimize its cost structure.

Question 6: A company's quick ratio is 0.6. What does this indicate?

The company is performing above industry average
The company has excessive cash reserves
The company is highly liquid
The company may struggle to meet short-term obligations without selling inventory (Correct answer)

Correct answer: The company may struggle to meet short-term obligations without selling inventory

A quick ratio below 1.0 suggests the company cannot cover current liabilities with its most liquid assets.

Question 7: In crisis management, what does 'triage' refer to?

A performance review process for management
A method of creditor negotiation
Prioritizing the most urgent issues that need immediate attention to prevent collapse (Correct answer)
A legal filing process

Correct answer: Prioritizing the most urgent issues that need immediate attention to prevent collapse

Triage in turnaround management means rapidly identifying and prioritizing the most critical problems — particularly cash-related — that must be addressed immediately to prevent further deterioration.

Question 8: What is 'Days Sales Outstanding (DSO)' and why is it important in a turnaround?

The average days between interest payment dates on outstanding debt
The average number of days it takes to collect payment after a sale; a high DSO strains liquidity (Correct answer)
The number of days between ordering and receiving inventory
The number of days inventory sits before being sold; it measures operational efficiency

Correct answer: The average number of days it takes to collect payment after a sale; a high DSO strains liquidity

DSO measures the average time to collect receivables; reducing DSO accelerates cash inflows and is one of the fastest ways to improve liquidity in a distressed company.

Question 9: What is the 'best interests of creditors' test in a Chapter 11 plan?

A test requiring the plan to maximize shareholder value
A test for DIP lender approval
A test for management compensation during restructuring
A test requiring each creditor to receive at least what they would in a Chapter 7 liquidation (Correct answer)

Correct answer: A test requiring each creditor to receive at least what they would in a Chapter 7 liquidation

The best interests test requires that each creditor receive under the plan at least the present value of what they would receive if the company were liquidated under Chapter 7.

Question 10: What is an out-of-court restructuring also commonly called?

Receivership
Workout (Correct answer)
Liquidation
Prepackaged deal

Correct answer: Workout

An out-of-court restructuring is often called a workout, where a company negotiates directly with creditors to modify debt terms without filing for bankruptcy.

Question 11: Which of the following metrics is MOST useful for assessing whether a turnaround strategy is improving a company's fundamental earnings power?

Stock price at the time of the turnaround announcement
Number of employees retained after restructuring
EBITDA margin trend over consecutive quarters (Correct answer)
Total assets on the balance sheet

Correct answer: EBITDA margin trend over consecutive quarters

EBITDA margin trend shows whether core operating profitability is improving, stripping out financing costs and non-cash charges to reveal true earnings power.

Question 12: What is a 'wind-down' in turnaround terminology?

An orderly process of ceasing operations and liquidating a company's assets (Correct answer)
A strategic pivot to a new business model
A court-ordered restructuring plan
A voluntary debt repayment program

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

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 13: What is the difference between a 'going concern' and a 'liquidation' valuation?

Going concern assumes continued operations; liquidation assumes immediate asset sale (Correct answer)
Going concern uses book value; liquidation uses market value
They are the same for distressed companies
Liquidation always produces a higher value

Correct answer: Going concern assumes continued operations; liquidation assumes immediate asset sale

A going concern valuation assumes the business will continue operating and generating cash flows, while a liquidation valuation estimates proceeds from selling assets immediately.

Question 14: Under Chapter 15 of the US Bankruptcy Code, what is addressed?

Consumer debt restructuring
Cross-border insolvency and cooperation with foreign courts (Correct answer)
Railroad company reorganizations
Small business reorganizations

Correct answer: Cross-border insolvency and cooperation with foreign courts

Chapter 15 implements the UNCITRAL Model Law on Cross-Border Insolvency, providing a framework for US courts to cooperate with foreign insolvency proceedings involving multinational debtors.

Question 15: What is a 'fulcrum security' in a distressed capital structure?

The equity security that is most liquid
The debt or security class at which value breaks — below which claims receive less than par (Correct answer)
The DIP loan that bridges the company through bankruptcy
The most senior secured debt

Correct answer: The debt or security class at which value breaks — below which claims receive less than par

The fulcrum security is the tranche in the capital structure at which enterprise value is exhausted, meaning holders above receive full recovery while holders below receive partial or no recovery.

Question 16: Which of the following best describes 'negative working capital' and when it can be a sign of financial strength rather than distress?

Negative working capital occurs when current liabilities exceed current assets; it can be a strength in businesses that collect cash before paying suppliers, such as large retailers (Correct answer)
Negative working capital is a temporary condition caused solely by seasonal fluctuations in inventory
Negative working capital means a company has no outstanding debt obligations in the current period
Negative working capital always indicates insolvency and is a sign of financial distress

Correct answer: Negative working capital occurs when current liabilities exceed current assets; it can be a strength in businesses that collect cash before paying suppliers, such as large retailers

Negative working capital—where current liabilities exceed current assets—can be healthy in cash-forward business models (e.g., retail, subscription) where customers pay upfront and suppliers are paid later, creating a built-in funding source.

Question 17: What is a 'fraudulent transfer' in the context of bankruptcy law?

Any transfer made during a bankruptcy case
Transferring assets at less than fair value or with intent to defraud creditors, which can be avoided (Correct answer)
Paying employees during the bankruptcy case
A payment made to a creditor without court approval

Correct answer: Transferring assets at less than fair value or with intent to defraud creditors, which can be avoided

A fraudulent transfer occurs when a debtor transfers assets for less than fair value or to hinder creditors; the bankruptcy estate can avoid (reverse) such transfers to recover value.

Question 18: Organizations can greatly benefit from strategies for ----

Guiding
Planning
All of these (Correct answer)
Control

Correct answer: All of these

Well-defined strategies benefit organizations across guiding (giving direction), control (setting benchmarks to measure performance), and planning (allocating resources toward goals) — so 'All of these' is correct. Strategies are not narrowly useful for just one function; they simultaneously serve as a compass, a control mechanism, and a planning framework.

Question 19: Which of the following is a PRIMARY driver of business distress according to turnaround professionals?

High employee morale
Overly aggressive hiring
Excessive marketing spend
Management dysfunction or poor strategic decisions (Correct answer)

Correct answer: Management dysfunction or poor strategic decisions

TMA research consistently identifies management dysfunction and poor strategic decisions as the leading cause of business distress.

Question 20: What is a 'cram-down' in Chapter 11 bankruptcy?

A tax penalty assessed during restructuring
Forcing employees to accept pay cuts
Confirming a reorganization plan over the objection of dissenting creditor classes (Correct answer)
Forcing the debtor to liquidate immediately

Correct answer: Confirming a reorganization plan over the objection of dissenting creditor classes

A cram-down allows a bankruptcy court to confirm a reorganization plan even if one or more classes of creditors vote against it, provided the plan meets certain legal requirements.

Question 21: What is Chapter 7 bankruptcy typically used for?

Reorganizing a business as a going concern
Liquidating a business and distributing proceeds to creditors (Correct answer)
Cross-border insolvency proceedings
Restructuring individual consumer debt

Correct answer: Liquidating a business and distributing proceeds to creditors

Chapter 7 is a liquidation process where a trustee sells the company's assets and distributes the proceeds to creditors in priority order, with the company ceasing to exist.

Question 22: What is a 'plan of reorganization' in Chapter 11?

The formal document outlining how creditor claims will be treated and the company reorganized (Correct answer)
A creditor committee's negotiating proposal
A 100-day operational plan prepared by management
An operating budget filed with the court

Correct answer: The formal document outlining how creditor claims will be treated and the company reorganized

The plan of reorganization is the central legal document in a Chapter 11 case that specifies how each class of creditors will be treated and how the reorganized business will be structured.

Question 23: What does 'inter-creditor dispute' refer to in a restructuring?

Disputes over professional fees in bankruptcy
Conflicts between different classes of creditors over the allocation of value in a restructuring (Correct answer)
Disputes between creditors and the debtor's management
Legal disputes between the company and individual creditors

Correct answer: Conflicts between different classes of creditors over the allocation of value in a restructuring

Inter-creditor disputes arise when different creditor classes — secured vs. unsecured, first lien vs. second lien — disagree over how the available value should be distributed in the restructuring.

Question 24: What is 'substantive consolidation' in bankruptcy?

Treating the assets and liabilities of related entities as a single pool for distribution purposes (Correct answer)
A plan that consolidates all creditor claims into one class
Merging multiple bankruptcy cases into one administratively
The court's authority to consolidate hearings

Correct answer: Treating the assets and liabilities of related entities as a single pool for distribution purposes

Substantive consolidation pools the assets and liabilities of affiliated debtors, treating them as one entity for distribution, often used when corporate boundaries were ignored and records commingled.

Question 25: What does 'equitable subordination' mean in bankruptcy?

The process of ranking creditors by size of claim
Equity holders receiving payment before creditors
A method of classifying creditors by asset type
A court subordinating a creditor's claim as a penalty for inequitable conduct (Correct answer)

Correct answer: A court subordinating a creditor's claim as a penalty for inequitable conduct

Equitable subordination allows a bankruptcy court to lower the priority of a creditor's claim — often an insider — as a remedy for conduct that was inequitable or harmful to other creditors.

Question 26: What is 'board oversight' particularly critical for during a corporate crisis?

Setting day-to-day operational priorities
Ensuring fiduciary duties are properly discharged as the company approaches and enters insolvency (Correct answer)
Approving all supplier contracts personally
Managing creditor communication directly

Correct answer: Ensuring fiduciary duties are properly discharged as the company approaches and enters insolvency

As a company approaches insolvency, directors' fiduciary duties shift to include creditors; robust board oversight ensures directors act appropriately and avoid personal liability.

Question 27: What is 'consent solicitation' as an alternative to bankruptcy in debt restructuring?

A lender vote to approve covenant amendments only
A process where the issuer seeks bondholder agreement to amend debt terms without a full exchange offer (Correct answer)
A court process for getting creditor consent
An SEC-regulated process for issuing new bonds

Correct answer: A process where the issuer seeks bondholder agreement to amend debt terms without a full exchange offer

Consent solicitation is an out-of-court mechanism where a distressed borrower asks bondholders to vote to amend indenture terms — such as loosening covenants or extending maturities — without a formal exchange offer.

Question 28: The concept of 'strategic fit' in turnaround management refers to:

Matching executive compensation to industry benchmarks
The degree to which a company matches its competitors' pricing
Alignment between a company's resources, capabilities, and its chosen strategy (Correct answer)
Ensuring all departments use the same IT systems

Correct answer: Alignment between a company's resources, capabilities, and its chosen strategy

Strategic fit means that a firm's internal capabilities and resources are aligned with the demands of its chosen external strategy.

Question 29: Which of the following best describes 'stakeholder communication' in a crisis?

Issuing legal notices only when required
Delegating all communication to outside counsel
Communicating only with shareholders
Proactively managing the message to key constituencies to maintain confidence and cooperation (Correct answer)

Correct answer: Proactively managing the message to key constituencies to maintain confidence and cooperation

Proactive stakeholder communication during a crisis — with employees, customers, lenders, and suppliers — helps maintain trust and prevent panic that could accelerate the company's decline.

Question 30: What does 'revenue enhancement' mean as a turnaround lever?

Focusing only on new market entry
Cutting prices to boost volume
Taking actions to grow or protect revenue alongside cost reduction efforts (Correct answer)
Replacing the sales team entirely

Correct answer: Taking actions to grow or protect revenue alongside cost reduction efforts

Revenue enhancement encompasses pricing improvements, sales force effectiveness, and customer retention initiatives that grow the top line alongside cost-cutting measures.

TMA Certified Turnaround Professional (CTP) Exam

The TMA CTP certification tests expertise in the financial, legal, and management aspects of corporate turnaround and restructuring, covering accounting and finance, legal principles including bankruptcy law, and crisis and turnaround management.

Questions

35 min

Time Limit

70%

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