'Corporate Restructuring is an inorganic business strategy where one or more aspects of a business are redesigned to improve commercial efficiency, manage competition effectively, drive faster pace of growth, ensure effe

External Restructuring It consists of merger and amalgamation of one company with another or demerger of one or more undertakings of a company into another company, acquisition of controlling stake in a company through purchase of majority stake in it, conversion of debt into equity, etc. The same are briefly explained hereunder. Restructuring through mergers, amalgamation and demerger: A company is merged, amalgamated or demerged to achieve improvement in efficiency in operational and financial performance of the company. In the insolvency proceedings of a corporate debtor, the resolution plan may provide for merger, forward or reverse of the corporate debtor with the resolution applicant (company) or any of its group companies to maximize the utilization of the assets of the corporate debtor. Similarly, the resolution applicant may provide to demerge one or more units of the corporate debtor to gain operational and financial efficiency. Restructuring through acquisition of controlling stake/purchase of Shares: The resolution applicant may, through a resolution plan, acquire the controlling stake in the corporate debtor by either reducing or cancelling its existing paid-up share capital and recapitalizing it by infusing further equity capital. Alternatively, the resolution applicant may acquire the existing equity share capital of the company partly or fully by making payment of some nominal consideration to the shareholders of the Corporate Debtor and for meeting the requirement of funds of the Corporate Debtor, the Resolution Applicant may infuse the funds partly in equity or partly in the form of debt or fully in the form of debt only. The management of the Corporate Debtor including its Board is also changed by the Resolution Applicant by appointing his nominee directors on the Board and by appointing other key managerial personnel. Restructuring through conversion of debt for issuance of securities: It can be understood that the insolvency of a Corporate Debtor is mainly due to default in its debt, whether financial debt or operational debt, where it could not fulfil its repayment obligation. The Resolution Applicant on the basis of the assessment of the Corporate Debtor, may propose the conversion of debt of the Corporate Debtor into securities of the Corporate Debtor issued in favor of the creditors, thereby, changing the nature and terms of the debt. The said securities may be in the form of equity share, preference share or debentures/bonds. As a result of the said restructuring, the existing debt of the Corporate Debtor is reduced to a sustainable level by conversion of the same into equity and by waiving substantial part of the unsustainable debt. Internal Restructuring The internal restructuring includes operational and financial restructuring. These are discussed in detail as follows: Operational Restructuring Operational Restructuring involves improving the operational efficiency of the corporate debtor so as to increase its business receipts and profitability. It may consist of creation of new departments to serve growing markets or downsizing or eliminating departments to conserve overheads. A company may undertake restructuring to focus on a particular market segment leveraging its core competencies or may undertake restructuring to make the organization lean and efficient. This type of restructuring affects employees and involves layoffs or collaboration with third parties to upgrade skills and technical knowhow. Financial Restructuring Financial restructuring is the process of reorganizing the financial structure, which primarily comprises of equity capital and debt capital. There may be several reasons (financial and non-financial) that trigger the need for financial restructuring. Financial restructuring is undertaken either because of compulsion (to recover from financial distress) or as part of company's financial strategy to achieve better financial performance. Financial restructuring is done for various business reasons such as to overcome poor financial performance, to gain market share, or to seize emerging market opportunities.