Default rates are climbing, and more companies are calling the expert they never hoped to need - the chief restructuring officer, or CRO. In a distressed business, a CRO can bring immense value. But watch how you hire one. Write the engagement letter so it avoids conflicts later with the CFO. So in 2026, when does it make sense to bring one in, and how do you do it without giving away control of your own company?
If you are hiring a CRO, first make sure you, and the people you put in charge, understand the role you are asking them to play. A lot of times this position is created so the others can do their jobs instead of trying to juggle everything. But a CRO can quickly start to bleed over into other responsibilities such as financial, operational, or even executive management. I suggest defining exactly what you are bringing a CRO in for and be specific about it in the engagement letter.
The first job of the CRO is to look at the company’s 13-week budget with fresh eyes, as a stranger might. Which bills are important, which aren’t. Which vendors we can’t live without and which we can lose. Who we’re going to pay this week and who we’re going to starve. The budget will bring those hard questions. Is the secured lender or the board demanding the CRO have full control over disbursements? Do they expect the CRO to single-handedly decide when to fire employees, sell, or liquidate business units? Do they expect the CRO to dictate the terms of a bank forbearance agreement? These are the questions that start all of the fights between the CRO and everyone else in the company. Lenders only care about how much gets spent on things that directly or indirectly benefit the lender.
Lender-proposed CRO
Don’t underestimate a lender, especially for a middle market company. Some lenders like to recommend CROs to borrowers, sometimes subtly, sometimes not. The nominee thanks the lender for the referral, and realizes that the lender might have more work for him to do. For the company, the engagement is likely to be one and done.
Is there really such a thing as an “independent” CRO? When the parties are fighting, who is the CRO really going to side with, the company or the lender? Yet an appointment by the lender, far from being a death knell for the company, can sometimes be the best thing that can happen. Sometimes the CRO can convince the lender to give the company a second chance. And sometimes, that alone, is reason to take a lender-proposed CRO - assuming you know how to deal with the conflicts.
Think about this: lenders will partially blame a CRO who endorses the debtor’s plan when the plan does not work; but they won’t think less of a CRO who recommends liquidation or a quick sale even if the company recovers. Keep that tilt in mind when you weigh the advice you get.
Provisions to Rein in the CRO
Make the rules. The CRO should not speak with the lender without informing the board or senior management. Someone from management sits in on every lender call and meeting. Nothing goes out to the lender without the approval of both management and the company’s lawyer. Management knows in advance what information is shared with outsiders. Strict communication rules aren’t just process. In a restructuring the lender is on the other side of the table. If the CRO speaks directly to the lender without keeping management informed, the company loses control of the story. The rules ensure the board and management see what the lender is being told and don’t get left behind.
One of the things a CRO may ask for is the right to act unilaterally without management approval. That means management loses autonomy. The retention agreement should have provisions to rein in the CRO. The most effective is a detailed list of things requiring board approval first. An active, engaged board means more board meetings.
Here are a few decisions that should require board approval:
- How many people and at what level the CRO may fire.
- The value of assets the CRO may sell.
- Hiring other professionals.
- Adopting a budget.
- Settling disputes above a certain dollar amount.
- Adopting a business plan.
- Terms of the lender’s forbearance.
The more decisions the board of directors has to make the more the board of directors has to meet and stay up to date on what’s going on. That’s part of the price owners pay to operate their companies with a CRO still living in the building.
Expect a fight on these limits in the engagement letter. The lender will want to approve the retention agreement and will object to any limits on talking with the CRO without management present. In fact the real reason - the one never discussed - is that the lender wants the CRO’s candid assessment of management. That can be handled other ways.
The CRO has a duty of candor to its own client, the company. The CRO will say that the company restrictions it has agreed to are keeping its hands too tied to keep the lender at bay. But there is no need for the lender to hear what the board doesn’t know. Management should get a chance to respond to and argue with the CRO’s views before they go to an adversary.
Many owners think of the CRO as the bank’s guy. If you hire them on the right terms, they’re not. That understanding is spelled out in the engagement letter, and it’s worth reading that letter before you sign.
Bring in a Turnaround Professional
So when should a troubled company bring in a turnaround professional? Here’s a rule of thumb: when the lender is pushing for a CRO, when you want the lender to give you one more chance to make a plan, when you want your executives to have the room to manage the company, even with a tough lender at the door. A CRO can be worth a lot. Just don’t sign up for one until the engagement letter spells out the role, what requires board approval, and the rules for talking to the lender.
