Restructuring

Reviewed by Vishnava | Updated on Sep 23, 2021

Catalogue

Introduction Restructuring

An action taken by a company to drastically change the financial and operational features of the company is known as restructuring. This is typically done when the business is undergoing financial problems. It includes modifying the debt, operations, or structure of a company to limit financial harm.

Understanding Restructuring

Deteriorating financial fundamentals, lacklustre revenue from sales, poor earnings performance, and even exorbitant debt are some reasons to restructure. Other reasons include the fact that the company is not competitive anymore.

A company may restructure due to a sale, buyout, merger, turn in overall goals, or transfer of ownership. For example, a company could choose to restructure after it defaults to launch a new product or service successfully, which leaves it in a position where it cannot produce enough revenue to cover the payroll and its debt payments.

As a result, depending on the agreement by shareholders and creditors, the company can sell its assets, restructure the financial arrangements, issue equity to lessen debt or file for bankruptcy as the business maintains operations.

Key Elements

  • Restructuring occurs when a company makes significant changes to its financial or its operational structure, typically while under economic duress.
  • Companies can also restructure when preparing for a sale, buyout, merger, transfer of ownership or change in overall goals
  • After restructuring, the company should be left with smoother and more economically sound business operations.

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