PART A · QUESTION 1
The bank is owed US$5m. A year later its security sells for US$3.2m, and the sale costs US$0.2m.
// EXAM HALL24 QUESTIONS · 30 MINUTES
Workout and Recoveries Manager Practice Test
What the security really fetches, whether to enforce or give it time, and how to deal straight with someone whose business you may have to close.
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
A workout and recoveries manager practice test asks what a failing borrower's security is really worth, and whether the bank does better by enforcing or by giving it time. This paper has three parts: ranking and recovery; one borrower's forced-sale values, guarantee and two options, set on an exhibit; and calls on staying a lender, third-party guarantees, preferences, provisions and hard conversations. The law differs by market, so the paper tests the judgment and not the statute. Every question is original, and none comes from any bank's test. Sit it against a thirty-minute clock, or take it as practice.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// HOW TO SIT IT
Answer below as practice, and each read opens as you go. Or sit it as a test: 30 minutes, with every read held back until you finish.
PART A
Who gets what
Who is paid first, and out of what. Work the sums before you look at the options.
PART A · QUESTION 2
The bank holds a second mortgage. A US$3m first mortgage ranks ahead of it. The property's market value is US$6m, and its forced-sale value is US$4m.
What is the bank's security worth in a forced sale?
PART A · QUESTION 3
A company with a US$25m senior secured bank loan and US$20m of unsecured notes fails. After the costs of the process, its assets realise US$30m.
Who gets what?
PART A · QUESTION 4
A borrower fails. The bank holds a floating charge over its stock and debtors. Employees are owed wages, and the tax authority is owed sales tax.
Who may be paid before the bank from those assets?
PART A · QUESTION 5
A company fails. One lender is secured over the plant; the other is unsecured. The receiver's realisations, after costs, are below. There are no preferential claims.
- Secured lender owed
- US$10m
- Unsecured lender owed
- US$5m
- Realised from the plant
- US$9m
- Realised from everything else
- US$2m
What does the unsecured lender recover?
PART A · QUESTION 6
A bank lends to a holding company whose only assets are shares in three operating subsidiaries. The subsidiaries have their own bank debt and trade creditors.
Where does the bank stand if a subsidiary fails?
PART B
The recovery sums
One borrower, ten questions. Read what comes out first before you count what comes back.
EXHIBIT AF · THE RECOVERY SUMS
A precast concrete maker, moved to workout last week. The bank is owed US$12.0m. It holds a first mortgage over the factory, a fixed charge over the plant, and a floating charge over debtors and stock. Money in US$m.
| Book value | Forced sale | |
|---|---|---|
| Factory (mortgage) | 7.0 | 4.9 |
| Plant (fixed) | 3.0 | 0.8 |
| Debtors (floating) | 4.0 | 2.1 |
| Stock (floating) | 3.0 | 0.9 |
| Total | 17.0 | 8.7 |
| US$m | |
|---|---|
| Costs of selling the factory and plant | 0.5 |
| Costs of collecting the debtors and selling the stock | 0.3 |
| Employee and other claims ranking ahead on the floating assets | 0.9 |
| Option | What comes back |
|---|---|
| Enforce now | What the security fetches, about a year from now. |
| Back the director's plan | US$10.0m if it works, US$5.0m if it does not, in two years. An even chance of each. Both are net of US$0.5m of new money the plan needs. |
A director's guarantee of US$1.0m, with no other assets known, is backed by a second mortgage on the family home, worth about US$1.1m, with a first mortgage of US$0.7m. The finance manager says that cash lasts about nine weeks. No weekly cash forecast has been seen.
PART B · QUESTION 7
From Exhibit AF, the factory and the plant.
What does the bank expect from them, after costs?
PART B · QUESTION 8
From Exhibit AF, the debtors and the stock.
What does the bank expect from them, after everything ahead of it?
PART B · QUESTION 9
From Exhibit AF, all the security together, before the guarantee.
What shortfall do you estimate?
PART B · QUESTION 10
From Exhibit AF, the director's guarantee and the family home behind it.
About how much is the guarantee likely to bring in?
PART B · QUESTION 11
Exhibit AF's file reached you last week. You are setting your first few days.
What comes first?
PART B · QUESTION 12
Exhibit AF's director says: 'I have turned this round before.' The plan's numbers come from the director and the finance manager.
What do you want before relying on them?
PART B · QUESTION 13
From Exhibit AF: compare the two options at 10% a year, taking the security to fetch what you estimated. Leave the guarantee out of both.
How do the two compare in today's money?
PART B · QUESTION 14
Exhibit AF's director says: 'Give me six months. I have turned this round before.' The finance manager says that cash lasts about nine weeks.
What do you say?
PART B · QUESTION 15
Exhibit AF's plan needs US$0.5m of new money. Without it, half-finished orders may sell for scrap. Your head of credit says: 'That is good money after bad.'
How do you test it?
PART B · QUESTION 16
An offer of US$4.2m arrives for Exhibit AF's factory. The buyer is the director's brother-in-law, and the forced-sale estimate is US$4.9m. 'Cash, and quick,' the director says.
What do you do?
PART C
The calls
Legal, commercial and human at once. The law differs by market, so ask what you would do, and who you would ask.
PART C · QUESTION 17
A director in trouble asks you: 'You can see all of it. Which suppliers should I pay this week?'
What do you do?
PART C · QUESTION 18
The family home behind a guarantee is jointly owned. The spouse signed at a branch, and the file shows no independent advice. The spouse has no part in the business.
What do you do before relying on it?
PART C · QUESTION 19
In your second meeting, an owner breaks down: 'My father built this. If it goes, the house goes too.'
What do you do?
PART C · QUESTION 20
The week after a file moves to workout, the company pays one old supplier in full. It is owned by the director's brother. Other suppliers are waiting.
Signal or noise?
PART C · QUESTION 21
You estimate a US$5m shortfall on a file that carries a US$1m provision. The regional head says: 'Hold your number until the plan has had a chance.'
What do you do?
PART C · QUESTION 22
Going back through a failed file, you find the paper valued the security as a going concern, and named one source of repayment. A lending team asks what you would have wanted it to say.
What do you tell them?
PART C · QUESTION 23
Week seven of a standstill on another file. Two milestones are missed. The weekly cash shows stock sold below cost, with the proceeds paid into an account the bank did not know about. The director asks for another month.
What do you do?
PART C · QUESTION 24
A journalist calls and asks you to confirm that a well-known client has breached its loan covenants. 'Everyone knows,' she says.
Your move?
0 OF 24 ANSWERED · 0 WITH THE SENIOR READ · 0 STANDS UP · 0 OFF THE LINE
// THE REST OF THE ROUND
Every question here is original; none is any bank's real test. Written for: Workout and recoveries manager.
- Workout and recoveries manager: the interview questions, against a two-minute clock.
- Situational judgement, for any seat.
- The assessment centre: a whole case in forty-five minutes.
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