Corporate Restructuring is basically the processor to a restructuring of the Financial condition of the company during the financial trouble, the companies holding high debt, unable to pay the debt on time, usually restructure the financial scenario to pay the debt as well as interest.
During a downtrend, most of the companies use to enter the process of Restructuring. Bank Financial Institutes also use to restructure the Loan and repayment to reduces their NPA.
What is Corporate Restructuring?
Corporate Restructuring is the corporate action to modify the financial structure of the company.
This is required to get rid of the scenario facing the companies and when the company is facing significant problems in paying their debts.
This is required to improve the Balance sheet and reduction of Debt, sometime it is happening to the expansion of the company or further IPO.
The company usually hire experts to restructure and negotiate with the debtor to finish up the debt.
Sometimes company uses to shuffle the staff or appoint new CFO/ CEO for making the perfect decision.
Objectives of Corporate Restructuring
Nature of Business/Strategy
During Economical Structure changes, the nature of business required a little change in their product and services, to explore the market and keep the company existence of the brand, to reach new customers.
For instance, if the company is expanding to the international market, they have to change the staff and required skilled people to handle the consequences during routine work.
Improving Bottom Line
Companies usually run different division to cover the market capitalization and earn more profits, sometimes the division due to some reason unable to generate sufficient profit as expected, may be due to wrong decision of the management, in that cases they required to close the division or need major changes or restructuring to improve the Bottom Line.
Improving Cash Flow
The sales of division which is not performing as per the market requirement need to be sold out, this decision will improve the company cash flow and help the Books and other running division.
This will also help the management to expand the division, selling the assets is a good approach for the management to reduce Debt also.
Mergers and Acquisitions
Mergers and acquisition help the company to expand the business and also provide the customers with the same cost, it will boost the profit numbers of the company.
Restructuring is highly required during Mergers and acquisition, like to control the whole system from the single desk to ensure that the new entity has the consistency of approach, to Welcome the new customers with the same behavior as the previous company provides.
Under split off the share, holder received new stocks for the subsidiary company in trade for their existing stocks.
How it Work:
Methods of business restructuring
Corporate Restructuring executes several methods with different segments of business and their benefits to the company.
Here are some of the methods of restructuring. Demonatozation 2017 drive lot of company for restructuring, for grabbing benefits from GST implementation.
Joint Venture is made between two or more entities for the specific purpose to formulate the assets together to achieve a particular result for a certain time period.
A joint venture (JV) is the process of an arrangement of two or more entities, in such an arrangement no single party is empowered to take a decision on behalf of the joint venture.
The joint venture is the business combination in which the firms financial and physical assets work together to engage in some economic activities such as project, production, marketing, sales etc.
Also Read: What is debt-equity ratio & its importance
Each of the entities works separately and the joint venture company created works of some activity to gain something.
Alliance agreement is one of the regular arrangement of corporate restructuring.
The purpose to reduce cost by sharing technology, product marketing strategy, capital etc
Alliance agreement is executed between two or more corporate to achieve a certain task.
Some of the oil sector and infrastructure company are a good example of a strategic alliance.
Franchising is the oldest way to expand the business.
Under this segment, companies grant excess to the operations and marketing strategy. This is the process of linking small company of the same business.
Franchise process access to the large market and improve the market capitalization of the company.
The spin-off is the processor implemented by the corporates of changing the core business of the company, which is going under pressure and the same is also reflected in the Books.
The core business is cut off and this needs to inform Security and Exchange Board of India.
In this processor, the company uses to sell some of its portion of its assets to the third party for cash or securities, just to reduce their debts and improve their cash flow.
This is one of the important restructuring method implemented by the companies to strengthen their Finances.
Equity Curve out
Sometimes companies offer some of the subsidiaries common stock to the public to raise some funds, which help to boost the core business.
This is the transaction in which the group of people or an expert team or organization control the company shares over a period of time or for daily basis.
In the projects line company engages similar kind of company to execute the work for them on back to back basis. The engaged company uses the trademark and assets of the principal company.
Corporate restructuring allows the company to stand in the difficult situation and run the company as well as keep the faith of the shareholder.
Restructuring helps the Debtors to payout the Loans and help improve the confidence of the banks and financial institutes.