What is Corporate Restructuring?

Corporate restructuring is a strategy companies of all sizes adopt to improve their efficiency and adapt to evolving conditions. It is used to address market changes, technological innovations or regulatory updates—external conditions—and economic difficulties or  expansion into additional markets—internal conditions. 

It is a complex process that examines various corporate structures: financial, legal, operational, and organizational. In this article we will look at which companies use it, why it works and how they implement corporate restructuring. 

What is the Purpose of Corporate Restructuring?

There are various reasons why a company should change its business structure. But what is the purpose of corporate restructuring? To deal with internal and external pressures than the company experiences during its life cycle to improve efficiency and profitability. The primary motivations include. 

• Improve operational efficiency: For example, reduce internal bureaucracy, avoid waste, and optimize resource consumption. In this way, improving internal processes and management can enhance operational control.
• Reduce costs or liabilities: Another reason is typical in companies experiencing economic difficulties or wishing to restructure. 
• Enhancing business competitiveness: Investing in technology and innovation can be a significant help. 
• Prepare for mergers, acquisitions or investments: A company can also restructure itself to prepare for these eventualities. 
• Responding to a crisis or financial stress: The final motivation is when facing severe economic losses. Restructuring can be decisive in turning around the company’s fortunes, saving jobs, and not running out of business. 

Ultimately, corporate restructuring is part of business adaptation. It is necessary to adapt to changing markets, strengthen operations, and remain competitive. 

Benefits and Risks of Corporate Restructuring

The benefits of corporate restructuring are considerable. At the same time, however, this process also has disadvantages and critical issues that must be addressed. 

Benefits

• Improved financial stability and performance: Restructuring allows financial balance to be achieved through reducing waste and debt and better use of resources. 
• Increase investor and stakeholder confidence: By adapting the company to changing markets and equipping it with better operational and management efficiency, it will attract more investors by gaining a solid reputation.
• Stronger alignment with strategic goals: Restructuring methodically enables the company to focus only on its core activities. By doing so, it can exit unprofitable markets. 
• Leaner and more responsive structure: The goal of restructuring is to equip the business with the services and structure needed to be flexible and competitive. 

Risks

• Short-term instability or decline in morale: Reorganizations can bring uncertainty to employees because of significant changes and initial instability.
• Executive risks or failure to meet goals: Unsuccessful or poorly managed restructuring can lead to failure to achieve goals, more general confusion, and high costs.
• Negative perception by customers or partners: If not perceived correctly externally, reorganization may be perceived as a crisis signal resulting in loss of trust.
• Legal or regulatory complications: Like any transition, a structural change leads to new regulatory complexities. It is critical to rely on professional and competent business restructuring services such as Ascot International.

So restructuring with serious strategies and planning can sharply increase companies’ competitiveness while considering human, legal, and operational costs.

The Corporate Restructuring Process

But what is a corporate restructuring in practice, and what are the steps to implement it? It is a complex process that seeks to improve business efficiency and competitiveness by touching on internal and external aspects. It consists of several stages: 

1. Planning and Assessment Phase: The first step is to get a clear idea of the company’s overall situation. Internal and external audits are conducted to assess assets, liabilities, assets, revenues, and operating costs. 
2. Stakeholder communication and organizational alignment: The second step is communicating upcoming changes to stakeholders, involving them, and adopting transparent communication. 
3. Implementation of changes: The third step is actually to implement the modifications. The main ones include staff reorganization, mergers, acquisitions, refinancing, etc.
4. Post-restructuring monitoring and evaluation: Once the measures have been adopted, their concrete effect on performance must be evaluated using KPIs and reporting tools. 
5. Legal and compliance checks throughout the process: Throughout the reorganization it is imperative to adapt to international and local regulations.

Understanding what is corporate restructuring allows you to adapt to internal corporate and external market pressures and improve competitiveness. 

Legal and Regulatory Considerations

Corporate reorganizations involve high complexity operationally, structurally, legislatively, and fiscally. During the process, corporate regulations, tax laws, labor law regulations, and operating in compliance with financial market rules must be observed. These regulations vary from country to country, forcing the company to stay informed. All of this can be complicated without accurate documentation that also allows transparency with stakeholders. That’s why it is crucial to rely on qualified lawyers, experienced auditors, and regulators. 

When to Consider Corporate Restructuring

There are various possibilities for considering Corporate Restructuring not only about activities that are not economically viable. For example, it may be a wise choice before M&A to facilitate operations. Or even during transitions in leadership or ownership or to enter different markets and diversify the business. Restructuring is an effective tool to save preserve businesses and adapt and remain competitive. 

FAQs

What is a corporate restructuring?

A complex process that modifies business structure and organization to emerge from crisis or adapt to shift.

What is the purpose of corporate restructuring?

The goal is to make the company more competitive by reducing costs and promoting growth.

Is corporate restructuring always due to failure?

Not necessarily. It is also essential to cope with internal and external pressures and remain competitive.

Can a small company undergo restructuring?

Yes. All companies can restructure to evolve, whatever the size. 

How long does a corporate restructuring process take?

There is no standard time to ensure reorganization. It can vary from a few months to a few years. 

References

Markides, C., & Singh, H. (1997). Corporate restructuring: Reconfiguring the firm. Strategic Management Journal, 14(S1), 15–29.
https://www.researchgate.net/publication/229644768_Corporate_restructuring_Reconfiguring_the_firm

Gilson, S. C. (2001). Creating value through corporate restructuring: Case studies in bankruptcies, buyouts, and breakups. John Wiley & Sons.​
http://csinvesting.org/wp-content/uploads/2012/09/creating-value-through-corporate-restructuring-stuart-c-gilson-edward-i-altman.pdf

Eckbo, B. E. (2013). Corporate restructuring. Foundations and Trends® in Finance, 7(3), 159–288.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2272970