Facing competitive markets, large amount of demanding shareholders and company executives may ask whether it is the time for company to be reorganized. And if we consider such aspect a very first question which is likely flashed is "Does restructuring really Works?" mostly company leaders go for the answer is both yes as well as no. But now the company leaders or executives must be able to address or answer the most important question.
"When and at what level does restructuring improve the economic performance of an organization or a firm?"
Corporate restructuring is been growing day by day and becoming a useful element of management life from the past decade. Various number of firms and organizations have reorganized their divisions , improved their method of working as in most strategic decision makings are been carried out, it is been assumed that such actions may spur your company's performance.
Restructuring is basically done when an organization or a firm is suffering from huge losses or when they are at the liquefied stage. So mainly people or the executives responsible for the output and growth of the organization mostly think upon these issues, issues such as 'How to increase the growth of production in terms of economy?'
For this they use all their techniques for an improvement flow of an organization to get better output, improvement in working system, improvement in stock and mostly restructuring includes an diverse array on organizations action, from selling old line of business the way they used to work to gain possession of new lines from getting rid of debt to repurchasing stocks, from introducing new businesses to reducing workloads.
They must also consider the diversity of outcomes to be expected as because different organization varies their effectiveness of their initiatives. If the enterprise is well managed no matter what course they have chosen it will definitely be more likely to get the deliberate results.
Corporate bankruptcy reorganization:
Corporate Bankruptcy:
Its a fundamental aspects or a legal declaration in which one is unable to pay ones money borrowed and thus needs to have money borrowed forgiven or reorganized. I.e. Bankruptcy is a legal proceeding in which a organization or a person is liquefied and so he/she or an organization is unable to pay his money that they have borrowed. I bankruptcy proceedings a person or an organization assets and debits are evaluated and debts are again paid according to the debtors ability to pay, it depends on what the creditors will be accepting and what will be the decision of the court and the law.
In the united states of America, bankruptcy is considered under federal jurisdictions. There are mainly three types of American bankruptcy.
Chapter 7
Chapter 11
Chapter 13
In chapter 7 the organization or a person or a company's assets are evaluated or liquidated and creditors are again paid out of the proceeds from the liquidation. And all the remaining debts are then dispatched or discharged.
In chapter 11 bankruptcy a company or an organization files a reorganization plan with the court where it is continued with the operation and creditors are again paid for the amount of what they are owed, rest all debts are discharged.
In chapter 13 the person or the organization remains in debt, but the thing is that the payments are lowered, the repayment duration or the periods are extended, and the organization can continue with its business i.e. it remains in business.
Ref :( http://financial-dictionary.thefreedictionary.com/Reorganization+bankruptcy)
Hence corporate bankruptcy is a concept in which the or it's a legal process by which a organization or a company is unable to pay its debts for a duration of time and wanted some more time as in a form of relief.
Corporate Reorganization and Bankruptcy: Lega… (Hardcover)
by Mark J. Roe
Bankruptcy comes in two different varieties, one is liquidation and the other is reorganization. In a liquidation, the bankruptcy owner or the trustee sells the organization or the firm, usually in the form of one piece at a time. The responsible person then collects the cash and then distributes the cash to the creditors.
And a Corporate bankruptcy reorganization is a process in which all the debts and assets are reorganized in a well manner and are later dispatched and taken into consideration that all processes are handled properly which will lead to company's or an organizations better future.
The reorganization is somewhat similar to practicing law nowadays, but in past years at the time of 1997 the corporations were given $125 billion in the favour of high risk discarded agreements. But then the firms in America issued the whole debt in 1980's and that time the discarded agreements were very famous in financial takings over the organizations. Actually it is very useful as well as helpful to first take into consideration the problems of the corporate finance later reorganize it into a historical view.
Reorganization also had some problems that directly linked to the technological aspects and changes that later were accepted at the end of the 19th century .
Debt Restructuring: Debt Restructuring is a concept or it is a process which is used by the private or public organization in order to make them organization strong, when the organization is facing some financial problems so as to improve the organization from getting liquefied and it can continue with all its operations. There can be several incidents and at that time company may be facing several financial disturbances like some outer disturbances or some internal disturbances held because of the irresponsible management, at this moment restructuring plays a vital role in order to come up with an solution for such issues.
In simple words if the old debt is replaced by the new debt but if is not under the financial circumstances then it is also called as refinancing.
In India a corporate Debt restructuring was evaluated and was structured under the influence of Reserve Bank of India in 2001.
(http://www.cdrindia.org/aboutus.htm)
The corporate Debt restructuring mechanism is a system based on the Debtor Creditor agreement (DCA) and the principles which are approved by higher majority of 75% creditors and also the Inter creditors Agreement (ICA).
The corporate Debt restructuring mechanism is designed to cover only manifold banking accounts, whereas all other banks together have an outstanding total revelation or appearance of above Rs. 100 million. In category one the restructuring cases of standards and sub standards classes of resources are covered whereas the doubtful resource cases are covered in category 2.
Leveraged buyouts and recapitalization:
1. Leveraged buyouts: (http://www.go4funding.com/Articles/Venture-Capital/Advantages-and-Disadvantages-of-Leveraged-Buyout.aspx) leveraged buyouts is type a concept in which or it's a type of business in which the companies or the organization use the money that they have taken in the form of bank loans etc., in order to finance something that they have acquired. In this both the belonging or the things of acquiring company as well as acquired company are functioned together as the form of secured concomitant in this type of business deals. In leveraged buyouts there is not more perpetrated capital it includes an average of 70% as a debt and a equity with only 30%. Further the interest that came into existence at the time of buyout will be counterbalanced by the further flow of cash of the acquired company.
The very most common law or an agreement of buyout is the management buyout or it is also called as MBO. In this level of corporate agreement , the higher authority person who is responsible to make decisions in the firm agree to take a large part of organization from the shareholders that are already existing.
Leveraged buyouts organizations today are looking forward to increase their value in already acquired companies or organizations taking into consideration their profitability and their growth. Every leveraged buyout is being the only one of its kind in terms of or with respect to particular structure of capital, the most common fundamental of the LBO is the use they make of financial leverage in order to complete the act of acquiring of the company that is been targeted.
The leveraged buyout is somewhat similar to someone buying a house on rent by keeping his other things as a mortgage. (Ref: note on leveraged buyouts by tuck school of business at Dartmouth).
2. Leveraged recapitalization: (Ref: Prof. Ian Giddy, New York University) A leveraged recapitalization is a concept or a strategy where an organization takes on relevant debt taking into consideration of either paying a large share of surplus or once again purchasing shares.
Once the large share of surplus has been paid, the value of the shares in market will go down. In this a share is considered as a "stub" and in a successful recap the value of the share of surplus plus the stub value further forms the pre-cap share price.
(http://macabacus.com/valuation/lbo/leveraged-recap) if we do analysis of leveraged recapitalization it refers to accounting for the repurchase, by a company, of its own common supply accumulated for further use. The price which is been paid for the common stocks is hired as a decrease to shareholders equity and the shares which are repurchased are taken as treasury stocks. Further the shares that are treasured can be issued again or secluded.
If there is some announcement on leveraged recapitalization the responses of market depends on whether they are protective or anticipatory. For the defensive recapitalization , there are verified effects such as positive and negative.
Exchange Offers is a concept in which they can exchange their holdings for the different purposes of securities of their organization. The very familiar example to this is to allow shareholders that are common to exchange their shares for ties or the stocks that are preferred, or the other way around.
The positive and negative effects are depended on whether the exchanges have one or more of the following consequences. (Prof. Ian Giddy, New York University) and hence it is easy to recognize the net effect, positivity, negativity, for the following exchange offers:
Exchange
To
Net Return
Common stock
Debt
+14.0%
Preferred stock
Debt
+2.3%
Debt
Private equity
-0.9%
Preferred stock
common stock
-2.6%
Debt
Common stock
-9.9%
