Corporate restructuring is the process by which organizational changes are made to increase a company’s value, help it to adjust to the demands of growth, make it more competitive in the marketplace, help it survive adverse economic conditions, and/or position the company to move in a new direction. This process often includes cutting out or merging departments, spinning off departments into subsidiaries for more effective management, reordering finances, personnel changes, scaling back or beefing up production, and selling underutilized assets. Two forms of corporate restructuring are financial restructuring and organizational restructuring.
What is Organizational Restructuring?
Organizational restructuring focuses on the management, administration, and operational structures of the corporation. Organizational restructuring makes the corporation more profitable and competitive.
Organizational restructuring is often necessary following a merger, a decrease in profits, or a change in the corporation’s focus. Executives typically hire financial and legal advisors to help them through the restructuring process.
Some examples of organizational restructuring activities include:
• Regrouping many smaller business units into a larger, more manageable group
• Downsizing surplus manpower
• Decentralizing authority from the main office to the various departments
• Outsourcing to reduce fixed costs
• Re-engineering business processes to maximize efficiency and returns
What is Financial Restructuring?
Financial restructuring focuses on the business’ assets and liabilities. The aim of financial restructuring is to reduce liabilities and manage assets more effectively. Organizations often find it necessary to restructure their finances when there is a decrease in profits, the business is facing serious problems, and to avoid bankruptcy. To get the greatest benefit from financial restructuring, executives often retain financial and legal counsel.
Some examples of financial restructuring activities include:
• Renegotiating with creditors to eliminate or reduce debt
• Restructuring low debt-to-equity ratios to increase the corporation’s market share
• Converting excess equity to cash for investment in emerging markets
If you have any further questions about corporate restructuring, our Coachella Valley corporate attorney would be happy to assist you.