This article has been written by Mr. Aditya Raj Pandey, a 2nd Year BA LLB student from Symbiosis Law School, Hyderabad

INTRODUCTION 

From the past few decades, we commonly observe two primary processes, in which one is associated with rearrangement and reorganization of any corporation and firm whereas the other one is related to indebtedness and bankruptcy of the company’s. Within the territory of India, we witnessed many different cases of both of these matters and the prominent reason for the same is rapid change in business types and continuous development and advancement around the globe. 

Corporate Restructuring is the set of process in which corporation makes certain changes to their structure, supervision as well as operations. Through this process, the whole structure and functioning changes for any firm without any laying off. This is generally accomplished by the corporations in order to succeed in the rapidly changing world. Now, there are several other goals as well which is accomplished by the corporations from carrying out the procedure of restructuring. The goals can be of any type like improving the fiscal condition and policy of the company along with streamline operations as well as the success of the company among the upcoming generations. Therefore, in order to achieve all these, corporate restructuring is performed by the firms or corporations. 

Corporate Insolvency is a term which generally means, that any corporation or firms becomes unable to pay their debt or loan whatever amount they have taken from different sources. In legal and specific terms, it can be said that, corporate insolvency means any condition in which a corporate firm is not in capacity to pay the debts or loan amount and therefore, the company have more liabilities in comparison to assets. The same increased liabilities is clearly depicted in the balance sheet of the corporation which eventually lowers the reputation of firms in society. Furthermore, due to insolvency, sometimes the situation may arises that particular corporate have to shutdown their business as they didn’t have any sufficient amount to run the same and manage the whole. 

CATEGORIES OF CORPORATE RESTRUCTURING 

Now, as we already saw and know the definition of Corporate restructuring, so, it is the time to move forward with the kinds of restructuring of firms. There are several types which are listed and explained below: 

1. Merger and Acquisition – It is one of the most vital form of the corporate restructuring. In the process of merger, one corporation merges with another corporation in such a manner that both of them gets benefitted or be at advantageous position. Whereas in the other process, one firm acquires the other firms or completely own the other firms and therefore they act as one single entity. Both of these process provides aids to companies to achieve stability and economic growth. 
2. Divestitures – This is the type of restructuring in which one company sales their one particular part or spin off the same. This whole process helps the corporations in order to focus more on their core parts and therefore eliminates the other businesses. 
3. Restructuring in the financial or fiscal manner is also one of the prominent form in which corporation changes their financial structure in order to gain more and more profits. Apart from these, the operational restructuring is also a prominent type. In this category, the particular corporation changes its operation, lowers the cost, maximized the efficiency and do many such things. 
4. Last but not the least, the change in the logo, name and title can also be considered as a type of restructuring. Here, as these things changes, the whole strategy to promote the particular corporation changes and thus considered as corporate restructuring types. 

KINDS OF CORPORATE INSOLVENCY 

There are basically two different types of corporate insolvency which is accepted globally and the same is listed and explained below: 

1. Cash Flow Insolvency – It is the situation in which any corporation or firm is unable to pay their debt or fulfil their financial obligations and hence it becomes due & unpaid. The most common example is that, if any company have less cash in their hands then they are unable to the debts, along with bills, rents as well as salaries. The showed example perfectly describes the cash flow insolvency. 
2. Balance Sheet Insolvency – It is the condition which occurs in corporation when the liabilities of any particular corporation or firm exceeds the assets of that particular company. In balance sheet, the firm have to enter each and everything and therefore, it becomes crystal clear that they are suffering from insolvency. 

Here, also an important point to penned down is that, during the time of insolvency in corporations the shareholders and creditors of that particular corporations loses their shares in the market and along with it, the employees or the workers loses their in hand jobs which subsequently causes harm to society in large and therefore the economy of the country in many different manners. 

RELATION BETWEEN CORPORATE INSOLVENCY AND RESTRUCTURING 

Both, corporate restructuring and insolvency are very different terms from each other but they are equally important for the corporate world / sector. Also, both these terms are essential in order to understand business as well as finance in depth. Corporate restructuring refers to the process of making significant changes to a company’s operations, management, or structure. The goal of corporate restructuring is usually to improve the company’s financial performance, streamline its operations, and position it for future success. Corporate restructuring can take many forms, including mergers and acquisitions, divestitures, financial restructuring, operational restructuring, and rebranding. When done correctly, corporate restructuring can help companies achieve long-term success and sustainable growth. However, when a company is unable to pay its debts as they become due or has more liabilities than assets on its balance sheet, it may be considered insolvent. Corporate insolvency can lead to the company being unable to continue its operations, and may ultimately result in liquidation or bankruptcy. Corporate insolvency can have significant implications for the company’s shareholders, creditors, employees, and other stakeholders. Shareholders may lose their investment, while employees may lose their jobs. Creditors may receive only a fraction of what they are owed, and the broader economy may be affected by the loss of jobs and economic activity. 

Both of these terms are closely in relation with each other as different corporate firms may undergo restructuring from time to time so that they can avoid insolvency. Also sometimes, it may be the case that, firms are forced to undergo restructuring procedure in order to avoid financial problems and insolvency and thus maintaining the good reputation in business world as well as society.  

CONCLUSION 

Towards the end of the article, we have to observe all the points which we discussed earlier in short forms and therefore, revitalize our concept on the same. Corporate restructuring is the process of changing the structure of company which can be of any type and this can be complex and challenging process that requires careful planning, analysis, and execution. However, when done correctly, it can help companies achieve long-term success and sustainable growth. Last but not the least, corporate insolvency is a condition where a company is unable to pay its debts as they become due or has more liabilities than assets on its balance sheet. This can have significant implications for the company and its stakeholders, and may result in liquidation or bankruptcy. All in all we can say that, understanding corporate restructuring and insolvency is important for anyone involved in business or finance, as these concepts can have significant implications for companies, investors, and the broader economy.

REFERENCES 

1. What is Corporate Restructuring and Why does it Matter?, Porte Brown 
2. Corporate Restructuring – Meaning, Types and Characteristics, Cleartax, Jul. 2021
3. Corporate Restructuring: Types and Importance, Taxmann, https://www.taxmann.com/post/blog/corporate-restructuring-types-and-importance/
4. Corporate Restructuring – Benefits, Types & Procedures, EnterSlice, https://enterslice.com/corporate-restructuring 
5. Analysis of the proceedings of Corporate Insolvency, Surya Rose, iPleaders, September 2021. 
6. Corporate Insolvency Processes – Overview, Lexis Nexis, https://www.lexisnexis.com/uk/lexispsl/corporate/document/391387/5DK7-G0D1-F186-H4FW-00000-00/Corporate_insolvency_processes_overview 
7. Corporate Insolvency: a quick guide, Thomas Reuters. 

Aishwarya Says:

The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

If you would also like to contribute to my website, then do share your articles or poems to secondinnings.hr@gmail.com

Join our  Whatsapp Group for latest Job Opening