Professional Documents
Culture Documents
AN OVERVIEW OF CORPORATE
RESTRUCTURING
Friday, 19 August 2016 About Me
Shubham Katyal
AN OVERVIEW OF CORPORATE RESTRUCTURING
Following 25
AND INSOLVENCY
My name is Shubham
Katyal.
CORPORATE RESTRUCTURING AND I am pursuing
Company Secretary Course (CS)
INSOLVENCY from Institute of Company
Secretaryof India.
by Shubham Katyal
View my complete profile
Blog Archive
2016 (1)
August (1)
AN OVERVIEW OF
CORPORATE
RESTRUCTURING
AND INSOLVE...
Introduction
Basically meaning of corporate Restructuring is a change in the business strategy of an organization
resulting in diversification, closing parts of the business, etc, to increase its long-term profitability.
Corporate Restructuring is defined as the process involved in changing the organization of a
business. Corporate restructuring can involve making dramatic changes to a business by cutting out
or merging departments that often has the effect of displacing staff members.
http://corporaterestructuringoverview.blogspot.in/2016/08/an-overview-of-corporate-restructuring.html 1/5
8/11/2017 AN OVERVIEW OF CORPORATE RESTRUCTURING: AN OVERVIEW OF CORPORATE RESTRUCTURING AND INSOLVENCY
4. Acquiring constant supply of raw materials and access to scientific research andtechnological
developments.
5. Capital restructuring by appropriate mix of loan and equity funds to reduce the cost of servicing
and improve return on capital employed.
1. Merger:
Merger is the combination of two or more companies which can be merged together either by way of
amalgamation or absorption.The combining of two or more companies, generally by offering the
stockholders of one company securities in the acquiring company in exchange for the surrender of
their stock.
Horizontal Merger:It is a merger of two or more companies that compete in the same
industry. It is a merger with a direct competitor and hence expands as the firms operations in the
same industry. Horizontal mergers are designed to produce plenty economies of scale and result in
decrease in the number of competitors in the industry.
Vertical Merger:It is a merger which takes place upon the combination of two companies
which are operating in the same industry but at different stages of production or distribution system.
If a company takes over its supplier/producers of raw material, then it may result in backward
integration of its activities. On the other hand, Forward integration may result if a company decides
to take over the retailer or Customer Company. Vertical merger may result in many operating and
financial economies. Vertical merger provides a way for total integration to those firms which are
striving for owning of all phases of the production schedule together with the marketing network.
Co generic Merger:In these mergers the acquirer and target companies are related through
basic technologies, production processes or markets. These mergers represent an outward movement
by the acquiring company from its current set of business to adjoining business. The potential benefit
from these mergers is high because these transactions offer opportunities to diversify around a
common case of strategic resources.
2.Demerger:
It is a form of corporate restructuring in which the entity's business operations are segregated into
one or more components. It is the converse of a merger or acquisition. A demerger may possible
through a Spin off, Split off, Split up and Sell off.
Spin off:In spin off company distributes its shareholding in subsidiary to its shareholders without
changing the ownership pattern.
Split off:The act of splitting off is a part of an existing company to become a new company, which
operates completely separate from the original company. Shareholders of the original company are
usually given an equivalent stake of ownership in the new company.
Split up: If an existing company is dissolved to form a new company it is known as split up.
Sell off:If a company sells its non- profit making division it results in sell off.
A demerger is often done to help each of the segments operate more smoothly, as they can now focus
on a more specific task.
3.Reverse Merger:
Reverse merger is the opportunity for the private companies to become public company, without
opting for Initial Public offer (IPO).In this process the private company acquires the majority shares of
public company, with its own name.
4.Disinvestment:
Disinvestment means the action of anorganization or governmentselling or liquidating an asset or
subsidiary. It is also known as "divestiture". A company or government organization will divest an
http://corporaterestructuringoverview.blogspot.in/2016/08/an-overview-of-corporate-restructuring.html 2/5
8/11/2017 AN OVERVIEW OF CORPORATE RESTRUCTURING: AN OVERVIEW OF CORPORATE RESTRUCTURING AND INSOLVENCY
asset or subsidiary as a strategic move for the company, planning to put the proceeds from the
divestiture toearn ahigher return on investment.
5.Take over/Acquisition:
Takeover means an acquirer takes over the control of the target company. It is also known as
acquisition. Normally this type of acquisition is undertaken to achieve market supremacy. It may be
friendly or hostile takeover.
Friendly takeover:In this type, one company takeover the management of the target company with
the permission of the board.
Hostile takeover:In this type, one company takeover the management of the target company without
its knowledge and against the wish of their management.
Project based Joint venture: The joint venture entered into by the companies in order to achieve a
specific task is known as project based JV.
Functional based Joint venture:The joint venture entered into by the companies in order to achieve
mutual benefit is known as functional based JV.
7.Strategic Alliance:
Any agreement between two or more parties to collaborate with each other, in order to achieve
certain objectives and allows to remain independent organization is called strategic alliance.
8.Franchising:
Franchising may be defined as an arrangement where one party (franchiser) grants another party
(franchisee) the right to use trade name as well as certain business systems and process, to produce
and market a good service according to certain specifications.
The franchisee usually pays a one time franchisee fee plus a percentage of sales revenue as royalty
and gains.
9.Slump sale:
Slump sale means the transfer of one or more undertaking as a result of the sale of lump sum
consideration without values being assigned to the individual assets and liabilities in such sales. If a
company sells or disposes of the whole or substantially the whole of its undertaking for a
predetermined lump sum consideration, then it results in a slump sale.
Insolvency -Meaning
In legal terminology, the situation where the liabilities of a person or firm exceed its assets. In
practice, however, insolvency is the situation where an entity cannot raise enough cash to meet its
obligations, or to pay debts as they become due for payment. Mere insolvency does not afford enough
ground for lenders to petition for involuntary bankruptcy of the borrower, or force a liquidation of
his or her assets.
Corporate Insolvency:
A company is considered to be insolvent, if it is unable to pay its debts.
http://corporaterestructuringoverview.blogspot.in/2016/08/an-overview-of-corporate-restructuring.html 3/5
8/11/2017 AN OVERVIEW OF CORPORATE RESTRUCTURING: AN OVERVIEW OF CORPORATE RESTRUCTURING AND INSOLVENCY
There are two tests for corporate insolvency:
a. Cash-Flow test:If the company is unable to pay its debts as and when they fall due for payment
and
b. Balance Sheet test: If the value of the company's assets less than the amount of its liabilities.
The new corporate insolvency law, The Companies (Second Amendment) Act 2002 is now
operational and the Sick Industrial Companies (Special Provisions) Act 1985 has been retracted by the
Sick Industrial Companies (Special Provisions) Repeal Act 2003. In India now, procedures for the
restructuring and insolvency of companies are contained in the same Act. The Second Amendment is
an attempt to create a balance between restructuring and insolvency. The Second Amendment seeks
to provide a quick, convenient and timely procedure for dealing with the affairs of a sick industrial
company
A sick industrial company is defined as an industrial company that has, at the end of a financial year,
accumulated losses equal to 50% of the average net worth of the company in the four preceding
financial years, or which has been unable to pay creditors as debts have fallen due in three
consecutive quarters.
Inquiry by NCLT:
The NCLT may make inquiries about the financial state of the company and its prospects. They may
require a group of experts to assist in making the inquiry. The NCLT can make an order putting a
scheme in place or ordering that the company be liquidated. Creditors may also put forward a
scheme.
Approval of Scheme:
Approval of a scheme requires consent of all parties by providing financial assistance within 60 days.
However, a non-reply is taken as consent. Every party providing financial assistance has a right of
rejection. This right of rejection cannot be overridden by a Court.
Rehabilitation:
In a rehabilitation, the debtor remains in possession of the entity. If the NCLT comes to the conclusion
that the sick industrial company cannot be revived and that it is just and equitable for the company to
be wound up, the Tribunal shall order the winding-up of the company. A levy is charged on each
company to establish a rehabilitation and revival fund for sick industrial companies.
by Shubham Katyal
91-8439727273
shubhamkatyal37@gmail.com
http://corporaterestructuringoverview.blogspot.in/2016/08/an-overview-of-corporate-restructuring.html 4/5
8/11/2017 AN OVERVIEW OF CORPORATE RESTRUCTURING: AN OVERVIEW OF CORPORATE RESTRUCTURING AND INSOLVENCY
https://www.facebook.com/shubham.katyal.3
https://www.linkedin.com/in/shubham-katyal-5334a8b0?t
No comments:
Post a Comment
Home
http://corporaterestructuringoverview.blogspot.in/2016/08/an-overview-of-corporate-restructuring.html 5/5