What corrective measures a Company can take to restructure its internal finance having noticed symptoms of either under capitalization or over capitalization?

CS Professional · Corporate Restructuring, Valuation and Insolvency · PYQS · June 2018
What corrective measures a Company can take to restructure its internal finance having noticed symptoms of either under capitalization or over capitalization?

Answer & Explanation:

On identifying symptoms of under-capitalisation, the company should resort to one or more of the following corrective measures: Injecting more capital either through right/preferential or public issue; Issuing bonds and debentures; Inviting and accepting deposits from directors, shareholders, relatives, business associates or public; Reducing the dividend per share split up at the shares; Issuance of bonus share will reduce both the dividend per share and earnings per share. And in case of over-capitalisation, following corrective measures may be resorted to: Buy-back of own shares; Reduction of capital by paying surplus capital to shareholders; Repaying loans to financial institutions, banks, etc.; Repaying fixed deposits taken from public, etc.; Redeeming its debentures, bonds, etc.; Preference shares may be redeemed through capital reduction scheme; Reducing face value and paid up value of equity shares; Initiating merger with well managed profit making companies interested in taking over ailing company.

Topics: Corporate Restructuring

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