TORQ
TORQ explains governed credit operations for digital and tokenized assets.
- 02 OCT 2026
- 6 min read
Credit recovery rights
Who can act when a credit position is impaired? See how TORQ separates recovery authority, investor protections, loss allocation and rights to later proceeds.
Recovery rights answer two different questions: who may act on an impaired credit position, and who is entitled to cash if value is recovered. In TORQ, those answers depend on the facility terms, the vault that funded the loan, and the stage of recovery.
A loss does not turn every investor into a recovery manager. Nor does a later sale automatically pay whoever currently holds vault shares. The relevant authority, loss allocation and beneficiary record have to be traced separately.
What happens after a credit position is impaired.
TORQ's documented V2 path distinguishes liquidation, recognition of any residual loss, and a possible acquisition by a separate Distressed Recovery Fund. One step does not automatically trigger the next.
1. Review liquidation.
A permitted liquidator can act on an unhealthy borrower position under the market's collateral, pricing and close-factor rules. Collateral may still be insufficient.
2. Recognize the remaining loss.
If debt remains, loss accounting records it in the originating vault's borrower and market partition. The loss is attributed to the capital that funded the position.
3. Choose a governed recovery route.
Recovered cash can be credited to the originating vault. A separate recovery fund may acquire a specified distressed asset only through its own approvals, funding and settlement conditions.
Who decides, and who receives the proceeds.
Operating authority and economic entitlement are distinct. An asset manager or other permitted actor can propose or execute an authorized action. That authority does not make the actor the owner of investor recovery cash.
- Liquidating a borrower position
- Decision or action: A permitted liquidator acts within market rules.
- Economic right: Cash and remaining debt stay attributed to the originating vault and loan partition.
- Recognizing a loss
- Decision or action: The authorized process records residual debt as a realized loss.
- Economic right: The affected vault's positions bear loss under their capital structure.
- Acquiring a distressed asset
- Decision or action: A permitted recovery-fund manager needs an exact approved, funded transaction.
- Economic right: The acquisition price compensates the original positions that bore the crystallized loss through a separate entitlement.
- Realizing value after acquisition
- Decision or action: The fund's authorized manager uses a permitted sale or workout route.
- Economic right: Later side-pocket proceeds belong to investors with claims on that side pocket, subject to its terms.
How are recovered cash and losses allocated.
Ordinary recovery cash paid to the originating vault first offsets its recognized loss. Only a surplus can enter that vault's reserve, subject to its redemption queue and other restrictions. Cash recovered for one vault does not become a general pool for another vault.
Where a market has eligible insurance cash, it is applied before investor loss. Any residual loss reaches Single Share or Junior capital first, then Senior capital when the vault uses tranches. Insurance is not automatic: markets start uninsured, and available cover depends on the configured market and reserve balance.
Why do historical holders matter.
When a loss is crystallized, TORQ records which active investors and queued redemption claims actually bore it. If a governed distressed-fund acquisition later pays a purchase price, that cash belongs to those loss bearers through a separate, non-transferable entitlement. It does not increase today's vault share value or bypass the ordinary redemption queue.
Investors who later subscribe to the recovery fund hold a different claim: their own fund epoch and side-pocket interest. They may receive later workout or sale proceeds from that side pocket. Holding a former vault position alone does not grant those fund proceeds.
When can investors block a below-floor sale.
TORQ's Managed Resolution V1 specification defines a bounded protection for a funded Full Sale below the facility's fixed valuation-methodology floor. The active manager still chooses and funds the proposed transaction. Affected capital holders can veto that exact proposal. They do not take over servicing or choose the buyer.
Under that specification, the proposal captures affected exposure at a record block. A 72-hour veto window follows. Vetoes representing at least 25% of total affected exposure block the sale. If the threshold is not reached, settlement is permitted only in the following six-hour window and only while the bound transaction and policy context remain valid.
Managed Resolution is not active in the published deployment. These timings and thresholds describe its specified design. A veto can stop one sale. It cannot guarantee a better buyer, higher price or any recovery.
Review before committing.
Review the actual facility configuration and legal documents before treating a recovery feature as an enforceable right. The useful diligence questions are concrete:
- Which vault and credit line fund the borrower, and who has authority to liquidate, service or propose a sale?
- What collateral, valuation method, price floor, evidence and buyer eligibility rules apply?
- Which approvals or veto rights apply to this facility, and what starts or ends each window?
- Is insurance enabled, how much eligible reserve cash exists, and which tranche absorbs residual loss first?
- Who owns ordinary vault recovery, acquisition-price compensation and later recovery-fund proceeds?
- What fees, recovery expenses, withdrawal constraints and reporting records affect the net amount and timing?
