ugsgusdgvuadsvkuhadvkjadv

1. NAME – AKASH C
SURESAN
CLASS – TY BCOM
DIV – D
ROLL NO – 505
TOPIC –
CAPITAL RESTRUCTING

2. CAPITAL RESTRUCTING
Capital Restructuring is a corporate operation aimed at changing the ratio of
equity and debt in a firm's capital structure. It is usually done in response to
crisis such as: Bankruptcy, Hostile Takeover Bid; and Changing Market
Conditions. Capital Restructuring is an operational approach primarily used
to deal with changes that impact a business's financial stability.
 MEANING
Capital Restructuring is a corporate operation that involves changing the
mixture of debt and equity in a company's capital structure. It is performed
in order to optimize profitability or in response toa crisis like bankruptcy,
hostile takeover bid, or changing market conditions.

3.  DEFINITION
The modification of a firm's capital structure either in response to changing business
conditions or as a means to procure funding for the organisation 's growth initiatives.
Restructuring is an action taken by a company to significantly modify the financial and
operational aspects of the company, usually when the business is facing financial
pressures. Restructuring is a type of corporate action taken that involves significantly
modifying the debt operations, or structure of a company as way of limiting financial harm
and improving the business.
Capital is generally the assets, often monetary, that are available to create more assets.
Thus, liquidity of capital should be high. Restructuring them means reallocating them to
improve their availability.
Hence, Capital Restructuring is defined as
altering the capital structure of a firm, in reaction to the changed business conditions, or as
means to fund the firm's growth plan. The restructuring process requires selling assets to
buy different ones in order to improve the capital means monetary position so that you can
improve the asset position thus enabling you to earn more with them.

4.  CONCEPT
The Concept of Capital Restructuring involves changing the amount of leverage a
firm has without changing the financial assets. Increase leverage by issuing debt
and repurchasing outstanding shares. Decrease leverage by issuing new shares
and retiring outstanding debt.
A restructuring involves negotiating the different positions taken by investors and
owners who hold the equity and lenders and creditors who control the debt. The
final result generally provides a peaceful resolution to a stressed condition.
Capital Restructuring involves careful analysis of a company's capital structure
ana lts liquidity. Therefore, financial statement analysis, valuation and financial
modelling are essential skills. Thus, restructuring process involve delicate
negotiations with debt and equity holders in order to balance their interests, so
proper communication skills and perfectness and required for this kind of work.

5. • A Capital Restructuring will focus on protecting and keeping the core of the
business intact during the period of economic downturn. It does this by using
some of its capital assets to offset operating expenses during this period. The
main objective of restructuring is to significantly modify the current structure,
operations or debt of a company as a potential way to improve the business as
a whole and eliminate or reduce financial harm. Capital Restructuring can also
be used to rearrange capital assets to position the company to take advantage
of growth opportunities.
• Restructuring a corporation is intended to enhance the Overall value of the
business and thus make the firm or surviving assets more financially
attractive to creditors, investors and the primary capital markets.

6.  TYPES OF RESTRUCTURING
Restructuring is the process of reorganising a business. The most common forms of corporate
restructuring are as follows:
1) Merger and Amalgamation
A statutory merger is based on the acquisition of a company's assets by another company,
either in the same or different industry.
Amalgamation is an arrangement, whereby the assets and liabilities of two or more companies
become vested in another company without giving proportional ownership to the
shareholders of the acquired company.
2) Acquisition:
Acquisition implies of controlling interest in a company by another company. It does not lend to
dissolution of company whose shares are acquired.
3) Takeover :
A private acquisition is a process when a company acquires another company. This process is
known as a takeover. A takeover process can be either friendly takeover or a hostile takeover.

7. 4) Financial Restructuring:
Financial Restructuring is the process of reshuffling or reorganising the
financial structure, which primarily comprises of equity capital and debt
capital. Financial Restructuring can be done because of either compulsion
or as a part of financial strategy of the company.
5) Divestitures or Demerger:
Divestiture involves selling off a business unit or the company to another
company. Divestiture can take multiple forms, including as sell-offs, spin-
offs, split-offs, split-ups etc.
6) Buyout:
Corporate buy-out are forms of corporate organisation where an entity
acquires a controlling interest in another company.

8.  TYPES OF RECONSTRUCTION
Reconstruction of a company is nothing but reorganising the financial/capital
structure of the company. Usually there are two types of reconstruction viz.
external and internal reconstruction.
1) External Reconstruction:
In this type of reconstruction, the existing company is liquidated with a view to
form another new company. The new company thereafter takes over the entire
business of the old company. The process of liquidating the existing company
and formation of a new company to take over the business of the old company
involves many more legal formalities to complete.

9. 2) Internal Reconstruction:
When a company has been suffering losses continuously for some reason, its
real capital is gradually lost and will not be represented by the available
tangible assets. Internal Reconstruction refers to the reduction of capital to
cancel any paid-up capital which is so lost or unpresented by available assets.
This is generally resorted to by companies by writing off the past
accumulated losses and to make a Balance Sheet which shows the true and
fair value of the assets and capital. The capital written off, is used to eliminate
the losses accumulated and to bring down the assets to their true values.
Thus, Internal Reconstruction means reduction of the capital, so as to reflect
the assets side at its true worth and to wipe off the accumulated losses.

10.  DISTINCTION BETWEEN INTERNAL
RECONSTRUCTION AND EXTERNAL
RECONSTRUCTION
INTERNAL RECONSTRUCTION
 Internal Reconstruction means that the scheme will
be carried out by means of reduction of capital, i.e.
by getting the approval of the Court
 In Internal Reconstruction, debenture holders,
creditors and bank overdraft may Continue,
 In Internal Reconstruction, the company will be
able to set off the past losses against future profits
for income tax purposes, considerably reducing the
tax liability.
 Internal Reconstruction is a slow and tedious
process, since the approval of all creditors,
shareholders and confirmation by the Court are
required before the scheme is carried out.
EXTERNAL RECONSTRUCTION
 External Reconstruction means that the scheme will
be carried out by liquidating the existing company
and incorporating immediately another company to
take over the business of the outgoing company
 debenture holders, creditors and bank
overdraft may not continue if there is an External
Reconstruction where these parties will have to be
settled.
 External Reconstruction, losses cannot be carried
forward for income tax purposes, since the business
technically comes to an end with liquidation.
 External Reconstruction can be brought about by
the decision of the ordinary shareholders and hence
is the only way for speedy reconstruction.

11.  FORMS
1) Leveraged BuyOut (LBO):
Leveraged BuyOut (LBO) is an important form of financial restructuring which
represents transfer of an ownership consummated heavily with debt. LBO involves
an acquisition of a division of a company or sometimes other sub units. At times, it
entails the acquisition of an entire company.
In leveraged buyout, the company is purchased primarily with borrowed funds. In fact,
as much of 90% of the purchase price can be borrowed. This can be a risky decision,
as the assets of the company are usually used as collateral, and if the company fails to
perform, it can go bankrupt because the people involved in the buyout will not be
able to service their debit. Leveraged buyouts wax and wane in popularity depending
on economic trends. A Leverage Buyout (LBO) involves transfer of ownership
consummated mainly with debt.

12. 2) Leveraged Recapitalisation (LR):
Another important kind of financing restructuring is Leveraged
Recapitalisation (L.R.). L.R. 15 the process of raising funds through
increased leverage and using the cash so raised to distribute to equity
owners, often by means of dividend. In this leveraged recapitalisation
process management and other insiders do not participate in the pay-out
but take additional shares instead. As a result, their proportional ownership
of the company increases sharply.
A Leveraged Recapitalization is a corporate finance transaction in which a
company change its capitalisation structure by replacing the majority of its
equity with a package of debt securities consisting of both senior bank debt
and subordinated debt. Leveraged Recapitalization have a similar structure
to that employed in Leveraged Buyouts (LBOs), to the extent that they
significantly increase financial leverage.