A Ltd. is engaged in the business of manufacturing designer clothes. Due to lower demand during the COVID-19 period, the company started facing financial difficulties. The company has a consortium of 9 lenders out of whi

In the given situation, the company is faced with financial crisis and is looking for options for Corporate Restructuring. Corporate financial restructuring is any substantial change in a company's financial structure, or ownership or control, or business portfolio designed to increase the value of the firm i.e., debt and equity restructuring. Internal reconstruction of a company is the simplest form of financial restructuring. Under this various liabilities are reduced after negotiating with various stakeholders such as banks, financial institutions, creditors, debenture holders and shareholders. It deals with the restructuring of capital base and raising finance for new projects. One of the options available with the company is debt restructuring. Debt Restructuring It involves reduction of debt and an extension of payment terms or change in terms and conditions, which is less expensive. It is nothing but negotiating with bankers, creditors, vendors. 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. Debt restructuring can be achieved in the following ways: Restructuring of the secured long-term borrowing for improving liquidity and increasing the cash flows for a sick company and reducing the cost of capital for healthy companies. Restructuring of the unsecured long-term borrowings. Restructuring of the long-term unsecured borrowings can be in form of public deposits and/or private loans (unsecured) and privately placed, unsecured bonds or debentures. Restructuring of other short-term borrowings: the borrowings that are very short in nature are generally not restructured these can indeed be renegotiated with new terms. These types of short-term borrowings include inter-corporate deposits clean bills & clean overdraft. Best method for corporate debt restructuring is Debt-equity swap. In the case of a debt-equity swap, specified shareholders have right to exchange stock for a predetermined amount of debt (i.e. bonds) in the same company. In debt-equity swap debt/bonds are exchanged with shares/stock of the company. Considering the above, debt restructuring is a viable option that the company may pursue.