Corporate Restructuring Valuation and Insolvency – What is Corporate Restructuring and Need of Corporate Restructuring?
Corporate Restructuring may be a one-time exercise for an organization but it may have a perpetual influence on the business and other concerned agencies due to its numerous considerations and immense advantages viz., convalescent corporate performance and immeasurable corporate governance.
Corporate restructuring is an expression, by which a company can consolidate its business operations and reinforce its position for accomplishing its short-term and long-term corporate objectives – synergetic, dynamic and continuing as a competitive and successful entity.
Types/Tools of Corporate Restructuring: merger, demerger, amalgamation, acquisition, disinvestments, joint venture, etc.
Mergers and amalgamations
The merger of two companies which may have similar or different business activities. There may be n numbers of reasons for mergers like cost saving to strengthen the business. Merger benefit analysis would tell the benefit or loss of the merger. New shares are usually issued. Payment of consideration by the issue of shares of Transferee Company to the members of transferor companies is the usual method.
Acquisitions refer to the acquisition of ownership, control, and management right over enterprises. Acquisitions take place by the acquisition of voting shares. In acquisitions, new shares do not come into existence.
In consolidation, the promoter group attempts to garner more stakes in order to strengthen their position and thereby achieve predominance.
NEED AND SCOPE OF CORPORATE RESTRUCTURING
Corporate Restructuring is concerned with arranging all the business activities of the corporate/enterprises as a whole so as to achieve predetermined objectives at the corporate level. Such objectives include the following:
– Orderly redirection of the firm’s activities;
– redistribution of surplus cash from one business to finance profitable growth in another;
– exploiting inter-dependence among present or prospective businesses within the corporate portfolio;
– Risk reduction; and
– Development of core competencies restructuring may be financial restructuring, technological restructuring, market restructuring and organizational restructuring. Companies Act containing a complete code in itself which provides for law and procedure to be complied with by the companies for compromises, arrangements, and reconstruction. If a compromise or arrangement is not bona fide but is intended to cover misdeeds of delinquent directors, the Court shall not sanction the scheme. In accordance with provisions of the Companies Act, 2013 the order of the Court becomes effective only after a certified copy thereof is filed with the Registrar of Companies in e-form21. Compliance with accounting standards is a mandatory requirement under the Companies Act, 2013
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