A firm is in financial distress at a given point in time when the liquid assets of the firm are not sufficient to meet the current requirements of its hard contracts. Mechanisms for resolving financial distress do so by rectifying the mismatch through restructuring the assets or restructuring the financing contracts, or both. Both asset restructurings and debt restructurings can be accomplished either through a formal court-adjudicated process or in a voluntary out-of-court workout for resolving default and reorganizing companies in financial distress. The choice of method used to resolve financial distress depends on the relative costs and benefits of each mechanism. A company which faces financial distress may be placed into the following procedures:
These procedures concern mainly companies that are not in cessation of payments stated it is not able to pay its debts with its available assets.