Financial structuring and restructuring services

Reconstruction is a process by which affairs of a company are reorganized by the revaluation of assets, reassessment of liabilities and by writing off the losses already suffered by reducing the paid-up value of shares and/or varying the rights attached to different classes of shares. The object of reconstruction is usually to reorganize capital or to compound with creditors or to effect economies. Such a process is called reconstruction which is carried out without liquidating the company and forming a new one.

Reconstruction can be internal and external reconstruction. While external reconstruction is said to be more in the form of amalgamation in the nature of merger.

Reconstruction is a management decision apparently for achieving the improvement in business profitability. Reconstruction/restructuring is generally carried out in the form of amalgamation/merger/demerger/takeover etc. Restructuring can be carried out in either of the Following 2 ways:

• Financial Restructuring: In this option, the entire focus is placed on finance of the company and the company tries to modify its financial state of affairs either by way of merger or amalgamation or various other ways. This method requires multiple compliances under different statutes such as Companies Act, 2013.

Various methods of financial restructuring is discussed below:

• Amalgamation/Merger

A company which is already running into heavy losses takes helps of another running company to revive its business. For this purpose, the company may opt either for amalgamation or for merger. This method leads to various benefits such as economy of scales, tax benefits, reduced competition etc. Acquiring company induces funds into the acquired company so that it can bring its business on track. Acquiring company may either discontinue the operations of an acquired company and merge its assets in its financial statement or it may allow it to continue running its operations with invested funds.

• Demergers:

In this option, a company transfers one of its loss making segments to another company for the purpose of arranging funds for smooth functioning of the remaining company. In case of demerger, entire assets and liabilities of the demerged segment becomes part of the resulting company.

• Compromise/arrangement

An agreement between the company and its members and outside liabilities due to the financial crisis is known as compromise or agreement. This involves sacrifice by shareholders, creditors, debenture holders, or maybe all of them

• Surrender of shares

In this method, the shares are divided into a smaller denominations and the shareholders are compiled to surrender the shares. These shares are then allotted to creditors and debenture holders for repaying their liability. The unutilized surrendered shares are canceled

• Organisation Restructuring: In this method, the company tries to revive by making changes in internal management such as optimising the hierarchies by removing unnecessary posts, down-sizing the number of employees, reducing the salary scale etc. For this restructuring, the company need to assess internal manpower requirement and then can decide accordingly.

Financial restructuring is generally adopted keeping in mind the long term aim of wealth maximization. The attributes for financial restructuring may be listed as below:

• Globalization has made it essential for entities to restructure as cost reduction is the important key to survival in the global market
• Governmental regulations and fiscal policies are one more reason for financial restructuring
• Periodical developments in technology have made it vital for the entities to keep themselves updated which leads to restructuring
• Divisionalization strategies, revamping methods, makes the entities to relaunch itself
• Cost reduction improved productivity, customer satisfaction is at the top of the goals for any entity. This sometimes downsizes the workforce.
• Revival and rehabilitation of sick companies to bring back to profitable lines is possible through restructuring
• Tax planning is many times an underline reason for restructuring
• The overall cost for capital, financial risks are minimized by maintaining balance in equity and debt
• Vertical and horizontal integration can be achieved through reconstruction

The expert team of VJM & Associates LLP have build a model for financial restructuring and take up the following areas in the assignment of Financial restructuring:

• The borrower’s business plan is evaluated to understand the debt structure of the entity
• The operational and financial information of the entity is studied thoroughly so as to review what is the existing status of the entity
• The borrowers’ cash flow projections are analyzed
• A financial reporting tool is developed by our team. This tool is monitored as per the requirement and situation and then reported to the management the developments and threats for the entity
• The performance of the entity is compared to the past and future projections as well so as to check if restructuring is working for the entity. If not then an alternative strategy can be applied.
• The critical collateral assets are assessed and investigated for their existence and value
• A detailed and minute analysis report and restructuring plans are then built. The same is presented and discussed with the management and decision is taken up accordingly
• Once the restructuring plan is finalized, negotiations with the lenders are initiated. After finalizing the terms the agreements are executed.
• Ways and means as per the restructuring plan for raising additional capital are implemented
• The team of VJM & associates LLP assists and guides for transferring short term loans to credit facilities which can be taken up for a longer period of time.
• We also assist in searching and executing deals with institutional and capital Investors for the long term, if required
• Formulation of strategies and plans for sick units through BIFR is efficient expertise of the team of VJM & associates LLP
• We also deal with the one-time settlement and debt restructuring