Corporate Restructuring- Meaning, Need, Scope & Objectives
Meaning & Etymology of Corporate Restructuring
The term corporate restructuring is a wide & varied term. It has no legal definition as the term has not been defined in any legal legislation. Hence, neither it has clear and precise meaning nor can it be defined with precision.
Etymologically the term” Restructuring” means ‘giving new structure or rebuild or rearrange’. In this perspective, ‘Corporate Restructuring’ is defined as a process of rearranging the organizational or business structure of the company for increased efficiency and profitable growth.
Simply stated, Corporate Restructuring is a comprehensive process by which a company can consolidate or rearrange its organizational set up or business operations and strengthen its position so as to achieve its short-term or/and long term objectives and establish itself as a synergetic, dynamic, continuing as well as successful independent corporate entity in the competitive environment.
In the words of hon’ble Justice D.Y. Chandrachud “Corporate Restructuring” is the means that can be employed to meet challenges which confronts businesses.
To conclude, it is a process undertaken by a business / corporate/ any other such entity whether proprietorship or partnership for the purpose of bringing about changes for better and to make the business competitive.
Needs of corporate restructuring
The various needs of undertaking the scheme of corporate restructuring in this modern competitive business / corporate world are discussed briefly as follows:-
- To focus on core strengths, operational synergy, and efficient allocation of managerial capabilities and infrastructure
- Consolidation and economies of scale by expansion and diversion to exploit the extended domestic and international markets c. Revival and rehabilitation of sick unit by adjusting the losses of such sick units with profits of healthy company
- Acquiring the constant supply of raw materials and access to scientific research and technological development
- Capital restructuring by appropriate mix up of loans and equity capital to reduce cost of servicing and to increase return on capital employed.
- Improve the corporate performances to bring it at par with competitors.
Scope of corporate Restructuring
Today, corporate restructuring has become common to the corporate sector in order to grow and survive in the present ongoing corporate environment for increased efficiency and profitable growth. It is mainly concerned with reorganizing or restructuring or rearranging the organizational or business activities of the company as a whole in the form of Merger, Amalgamation or Takcover or Joint Venture etc., so as to achieve certain predetermined objectives at corporate level. SO, following are the Scope of corporate Restructuring-
- Scope of restructuring encompasses enhancing economy(COST REDUCTION) and improving efficiency(PROFITABILITY)
- Cost cutting and value addition are the two mantras that get highlighted in a highly competitive world
- In every restructuring exercise the common objectives is to eliminate the disadvantages and combine the advantages at all level
- Restructuring is concerned arranging the business activities of the corporate as a whole.
- Reducing cost of capital translate into profits
- The term amalgamation and merger are synonymous in the Companies Act, 2013.
Objectives of Corporate Restructuring
When the corporate enterprises consider the scheme of restructuring their business activities they have to take a wholesome view of the business activities so as to introduce a scheme of restructuring at all level in a phase manner. It also aims at improving the competitive position of an individual business, maximizing its contribution to the corporate level objectives and exploiting the strategic assets accumulated by a business to enhance the competitive advantage. Thus, restructuring would help bringing an edge over competitors.
Some of such corporate objectives are as follows:-
- Orderly redirection of the firms activities
- Deploying the firm’s surplus funds from one business to another for profitable growth.
- Exploiting the inter dependence among the present and perspective business within corporate Portfolio.
- Risk reduction and
- Development of core competencies.
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