Resolution Plan should first demonstrate as to operational restructuring for improving the operational efficiency of the corporate debtor so as to increase its business receipts and profitability. It may consist of creation of new departments to serve growing markets or downsizing or eliminating departments to conserve overheads.
Besides the operational restructuring the plan can also demonstrate of financial restructuring which primarily comprises of equity capital and debt capital so as to overcome poor financial performance and gain the market share and opportunity.
The Insolvency and Bankruptcy Board of India has made the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 to regulate the Insolvency Resolution Process for Corporate Persons. Regulation 37 as substituted vide Notification No. IBBI/ 2017-18/GN/REG024, dated 6th February, 2018 (w.e.f. 06 February 2018) provides that a resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of the corporate debtor for maximization of value of its assets, including but not limited to the following:
(a)transfer of all or part of the assets of the corporate debtor to one or more persons;
(b)sale of all or part of the assets whether subject to any security interest or not;
(c)the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons; (ca)cancellation or delisting of any shares of the corporate debtor, if applicable;
(d)satisfaction or modification of any security interest;
(e)curing or waiving of any breach of the terms of any debt due from the corporate debtor;
(f)reduction in the amount payable to the creditors;
(g)extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor;
(h)amendment of the constitutional documents of the corporate debtor;
(i)issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose; (j) change in portfolio of goods or services produced or rendered by the corporate debtor; (k) change in technology used by the corporate debtor; and (l) obtaining necessary approvals from the Central and other authorities.
Corporate Restructuring is an inorganic business strategy where one or more aspects of a business are redesigned to improve commercial efficiency, manage competition effectively, drive faster pace of growth, ensure effective utilization of resources, and fulfilment of stakeholders’ expectations. It serves different purposes for different companies at different points of time and may take up various forms. Restructuring typically occurs to address challenges or it can be driven by the necessity to make financial adjustments to its assets and liabilities. Mergers, amalgamations, acquisitions, compromises, arrangement or reconstruction are various forms of corporate restructuring exercises.
The purpose of each of these restructuring exercises may be different but each of these exercises attempts to bring in more efficiency in the system. Corporate restructuring may be broadly categorised as:
1.Organisational Restructuring
2.Financial Restructuring
1.Organisational Restructuring: Organizational Restructuring may involve creation of new departments to serve growing markets or downsizing or eliminating departments to conserve overheads. A company may undertake restructuring to focus on a particular market segment leveraging its core competencies or may undertake restructuring to make the organisation lean and efficient. This type of restructuring affects employees and involves layoffs or collaboration with third parties to upgrade skills and technical know-how.
2.Financial Restructuring Financial restructuring is the process of reorganizing the financial structure, which primarily comprises of equity capital and debt capital. There may be several reasons (financial and non-financial) that trigger the need for financial restructuring. Financial restructuring is undertaken either because of compulsion (to recover from financial distress) or as part of company’s financial strategy. Financial restructuring is done for various business reasons such as to overcome poor financial performance, to gain market share, or to seize emerging market opportunities. Financial restructuring undertaken to recover from financial distress involves negotiations with various stakeholders such as banks, financial institutions, creditors in order to reduce liabilities.
Source: ICSI Guideline Answers, December 2022, Q. 6(b) (Syllabus 2017).