Financial restructuring is often a last resort, but invariably the most effective one. The environment in which a business must grow is an unpredictable terrain. Rises and dips in markets, sudden technological breakthroughs, and a finicky consumer base can all render a company’s original business model obsolete.<\/p>\n
Corporate restructuring<\/a> involves the fundamental change in the company’s business or a financial structure that is designed to increase company’s value to the shareholders or the creditor. Corporate restructuring is often divided into two parts: financial restructuring and operational restructuring.<\/p>\n Financial restructuring is done for various business reasons and these could be:<\/p>\n Financial restructuring can be either from an assets side or liabilities side of balance sheet. If one is changed, accordingly the other will be adjusted<\/p>\n Debt restructuring:<\/strong> It is the process of reorganizing the whole debt capital of the company. It involves the reshuffling of the balance sheet items as it contains the debt obligation of the company.<\/p>\n The company’s financial manager needs to always look at the options to minimize the cost of capital & improving the efficiency of the company as a whole which will in turn call for the continuous review of the debt part & recycling it to maximize efficiency.<\/p>\n It is further divided into:<\/p>\n Restructuring of secured long-term borrowings will be done for the reasons such as<\/p>\n Restructuring of the long-term unsecured borrowings will be done depending on the type of borrowing. Such borrowings can be in form of public deposits and\/or private loans (unsecured) and privately placed, unsecured bonds or debentures<\/p>\n Credit limits from commercial banks, demand loans, overdraft facilities, bill discounting and commercial papers fall under the working capital<\/a> borrowings. All these are secured by the charge on inventory and book debts and also on the charge on the assets.<\/p>\n The restructuring of the working capital borrowing is almost all the same as in case of term loans.<\/p>\n The Equity Restructuring:<\/strong> It is a process of reorganizing the equity capital. It includes a reshuffling of the shareholders capital and the reserves that are appearing on the balance sheet. Restructuring of equity & preference capital becomes complex process involving a process of law and is a highly regulated area.<\/p>\nWhy financial Restructuring?<\/strong><\/h2>\n
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Components of financial Restructuring<\/strong><\/h2>\n
The 2 components of financial restructuring are as follows:<\/strong><\/h4>\n
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Reasons behind equity restructuring <\/strong><\/h4>\n