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 a way of limiting financial harm and improving the business.
When a company is having trouble making payments on its debt, it will often consolidate and adjust the terms of the debt in a debt restructuring, creating a way to pay off bondholders. A company restructures its operations or structure by cutting costs, such as payroll, or reducing its size through the sale of assets.
A company may restructure as a means of preparing for a sale, buyout, merger, change in overall goals or transfer to a relative. The company may choose to restructure after it fails to successfully launch a new product or service, which then leaves it in a position where it cannot generate enough revenue to cover payroll and debts.
As a result, depending on agreement by shareholders and creditors, the company may sell its assets, restructure its financial arrangements, issue equity for reducing debt, or file for bankruptcy as the business maintains operations.
How Restructuring Works
When a company restructures internally, the operations, processes, departments, or ownership may change, enabling the business to become more integrated and profitable. Financial and legal advisors are often hired for negotiating restructuring plans. Parts of the company may be sold to investors, and a new chief executive officer (CEO) may be hired to help implement the changes.
The results may include alterations in procedures, computer systems, networks, locations, and legal issues. Because positions may overlap, jobs may be eliminated and employees laid off.
Restructuring can be a tumultuous, painful process as the internal and external structure of a company is adjusted and jobs are cut. But once it is completed, restructuring should result in smoother, more economically sound business operations. After employees adjust to the new environment, the company is typically better equipped for achieving its goals through greater efficiency in production.