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CORPORATE RESTRUCTURING STRATEGIES IN INDIA -AN OVERVIEW

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Alochana Chakra Journal ISSN NO:2231-3990

CORPORATE RESTRUCTURING STRATEGIES IN INDIA – AN OVERVIEW

C.Savitha Dr.K.Ganesamurthy
Ph.D. Scholar (Part-Time) Assistant Professor
Department of Corporate Secretaryship Department of Corporate Secretaryship
Alagappa University Alagappa University
Karaikudi Karaikudi
Email: savithagandhi19@gmail.com Email: ganesamurthyk@alagappauniversity.ac.in
Ph: 9487706070 Ph: 9942447015

Abstract

The business environment is rapidly changing with respect to technology, competition,

products, people, geographical area, markets, and customers. It is not sufficient if companies
keep pace with these changes but are expected to beat competition and innovate in order to
continuously maximize shareholder value. Inorganic growth strategies like mergers, acquisitions,
takeovers and spinoffs are regarded as important engines that help companies to enter new
markets, make bigger customer base, cut competition, consolidate and grow in size quickly,
employ new technology with respect to products, people and processes. Corporate restructuring
helps companies deal with poor performance, adopt new deliberate opportunities, and achieve
credibility in the capital market. It can also have an enormous impact on a company’s market
value, often in terms of billions of dollars. The scope of Corporate Restructuring encompasses
enhancing economy (cost reduction) and improving efficiency (profitability). When a company
wants to grow or endure in a competitive environment, it needs to restructure itself and focal
point on its competitive advantage. The benefits derived by the stakeholders out of restructuring
are lower from previous status companies. Even though, there are so many studies related to the
corporate structuring, the studies will be focused on either the stakeholders’ views on the
corporate restructuring strategies at companies or the implementation of the strategies at
companies. The concludes will also help a company through the process of restructuring by
developing forecasts of what to expect and making sure the company is able to secure the capital
available to make those changes. Corporate restructuring can help restore, conserve and enhance
the value of an organization in India.

Key words: Corporate Restructuring; Inorganic; Merger; Acquisition; Stakeholders

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Introduction

An Indian company is under pressure as the survival of the fittest becomes the reality.
The Indian corporate world is hard pressed to restructure their business. It is time now for Indian
companies to wake up from its prolonged snooze. Indian corporate world has witnessed major
changes in the last decade. Lot of thans to govt’s policy of LPG (Liberalization, Privatization
and Globalisation) of the Indian economy. The never before visualized dream of growing big
into the competitive global markets slowly, but surely materializing with the reforms,
restructuring become very important for the Indian companies. Many big business addresses and
family run business are moving towards restructuring and increasing their value of the firm and
competitiveness. The business environment is quickly changing with respect to technology,
competition, products, people, geographical area, markets, and customers. It is not enough if
companies keep pace with these changes but are expected to beat competition and innovate in
order to continuously maximize shareholder value. Inorganic growth strategies like mergers,
acquisitions, takeovers and spinoffs are regarded as significant engines that help companies to
enter new markets, enlarge customer base, cut competition, consolidate and grow in size quickly,
employ new technology with respect to products, people and processes. Thus the inorganic
growth strategies are regarded as fast track corporate restructuring strategies for growth.

Restructuring is the corporate management term for the act of rearranging the legal,
ownership, operational, or other structures of a organization for the rationale of making it more
beneficial, or better structured for its current needs. Other reasons for restructuring comprise a
change of ownership or ownership structure, demerger, or a response to a crisis or chief
alteration in the business such as insolvency, repositioning, or buyout. Restructuring may also be
described as corporate restructuring, debt restructuring and financial restructuring Rising
competition, breakthrough technological and other changes, rising stock market volatility, major
corporate secretarial aspects have increased the responsibility to managers in order to deliver
superior performance and enhance market value to shareholders. The organizations which not
succeed to deal with the above effectively may lose their independence, if not face destruction.
Rising competition, swift advances in technology, more demanding shareholders and increasing
difficulty of the business conditions have increased the burden on managers to deliver superior

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performance and value for their shareholders. Corporate restructuring helps companies deal with
poor performance, adopt new strategic opportunities, and achieve credibility in the capital
market. It can also have a enormous impact on a company’s market value, often in terms of
billions of dollars. But how does a corporate restructuring actually get done? How do the related
bankruptcies, mergers and acquisitions, spin-offs, and buyouts affect creditors, shareholders, and
employees? What are the options, issues, trade-offs, and conflicts? All through the past decade,
corporate restructuring has increasingly become a staple of business and a common occurrence
around the world. Unprecedented number of companies across the world have reorganized their
divisions, restructured their assets and updated their operations in a bid to stimulate the
company's performance. It has facilitated copious organizations to react rapidly and more
effectively to new opportunities and unanticipated pressures.

Capital structure and leverage decisions represent potentials for value enhancement, for
acquiring other firms or to defend against being acquired by others. Leverage recapitalization
involves a relatively large issue of debt that is used for the payment of a relatively large cash
dividend to non-management shareholders or for the repurchase of common shares, or a
combination of both, thereby increasing the ownership share of the management. On the other
hand, in a dual-class stock recapitalization, firms establishes a second class of common stock that
has limited voting rights but usually with a preferential claim to the firm’s cash flows. An
exchange offer provides one or more classes of securities, the right or option to exchange part or
their entire holding for a different class of securities of the firm. Financial reengineering is used
by the firms to limit their financial exposure and also to facilitate merger transactions. If the firm
is worth more “dead than alive”, creditors will force the firm to liquidate. In liquidation, the firm
can be sold in parts or as a whole for an amount that exceeds the pre- liquidation market values
of the firms’ securities.

Meaning of Corporate Restructuring

Restructuring as per Oxford dictionary means “to give a new structure to, rebuild or
rearrange". As per Collins English dictionary, meaning of corporate restructuring is a change in
the business strategy of an organization resulting in diversification, closing parts of the business,
etc, to increase its long-term profitability. Corporate restructuring is defined as the process

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involved in changing the organization of a business. Corporate restructuring can involve making
dramatic changes to a business by cutting out or merging departments. It implies rearranging the
business for increased efficiency and profitability. In other words, it is a comprehensive process,
by which a company can consolidate its business operations and strengthen its position for
achieving corporate objectives-synergies and continuing as competitive and successful entity.

Need for the study

The scope of Corporate Restructuring encompasses enhancing economy (cost reduction)
and improving efficiency (profitability). When a company wants to grow or survive in a
competitive environment, it needs to restructure itself and focus on its competitive advantage.
The survival and growth of companies in this environment depends on their ability to pool all
their resources and put them to optimum use. A larger company, resulting from merger of
smaller ones, can achieve economies of scale. If the size is bigger, it enjoys a higher corporate
status. The status allows it to leverage the same to its own advantage by being able to raise larger
funds at lower costs. Reducing the cost of capital translates into profits. Availability of funds
allows the enterprise to grow in all levels and thereby become more and more competitive.

Review of Literature
Laura Horn (2012) have emphasized on the essentially political nature of corporate
governance regulation and argues that the transformation of corporate governance regulation is
part of a broader political project of economic restructuring and market- making in the European
Union and illustrated that how company law has become increasingly focused on the rights of
shareholders, while worker rights have been relegated to the area of social policies and labor law.
Desai; Klock; & Mansi (2011) have observed the role played by the parent's intention in
undertaking a carve-out and found that the post-IPO parent ownership considerably influence the
acquisition possibility and the level of acquisition premium.
Zahid & Shah (2011) have stated that businesses from developing countries have started
to buy out businesses of developed countries as their economies are doing better compared to the
developed world due to low cost of production. Indian and Chinese businessmen are the most
aggressive compared to rest in this regard.

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Owolabi & Dada (2011) has examined the role, nature, composition, objectives and
functions of an effective audit committee in achieving reliable corporate governance and
suggested that the recent business and governance failures demonstrated that a great step in
corporate governance restructuring is a must.
JingluJiang and BoLiu. et. al. (2019) This paper empirically investigates the causal
effects of debt restructuring on firm investment using the propensity matching score with
difference-in-difference (PSM-DID) method based on the panel data of listed companies in
China from 2005 to 2016. The results show that the impact of debt restructuring on firm
investment are heterogeneous among different property rights, industry natures, restructuring
payment modes and amounts, and debt renegotiation characteristics. Our analyses indicate that
debt restructuring has a more significant impact on promoting investment efficiency for state-
owned enterprises (SOEs), firms in industries with excess capacity, and debt-restructuring firms
that pay off debts with assets.

SzeKeeKoh And Robert B.Duran (2015): A firm's lifecycle consists of birth, growth,
maturity and decline. We examine the strategies that firms choose when facing financial distress
and present evidence that these choices are influenced by the corporate lifecycle. This influence
is most pronounced in the choice of financial restructuring strategies such as reducing dividends
or changing capital structure. We also examine if the way firms face financial distress affects the
likelihood of recovery. We find that reducing investment and dividends are associated with
recovery for all firms, but there is little influence of lifecycle.

Dr. Partap Singh M&A in India: Mergers and Acquisitions: Some Issues & Trends The
number of deals really picked up in the year 1999 with total of 1453 deals as compared to only
172 deals in 1998. The years 2000, 2007 and 2008 saw decline in the deals by 22%, 2% and 24%
respectively due to the global credit crisis. M&A has a decreasing trend from the year 2000 to
2008. The trends in Indian M&A, which recorded a rapid increase between 2003 and 2007
registering a compounded annual growth rate of 95% at $70 billion. Though it dipped following
the global crisis of 2008 only to recover soon to hit a fresh peak of $50 billion by 2010.
Statement of the Problem
Corporate Restructuring plays a major role in enabling enterprises to achieve economies
of scale, global competitiveness, right size, and a host of other benefits including decrease of cost

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of operations and administration. The Companies Act, 2013 has brought many enabling
provisions with regard to mergers, compromise or arrangements, especially with respect to cross
border mergers, time bound and single window clearances, enhanced disclosures, disclosures to
various Regulators, simplified procedure for smaller companies etc. It may be noted that Section
230-240 of the Companies Act, 2013 and the rules are notified. Though there are many drivers of
restructuring and one can expect increase in the restructuring, there are certainly some challenges
the corporations have to deal with the many external shocks such as political instability, higher
oil prices and interest rates have possible to affect the dynamics of restructuring. Lack of
transparency or weak exposé standards in securities markets could lead to surprises that were not
anticipated during due diligence and the pace of regulatory change. The benefits derived by the
stakeholders out of restructuring are lower from previous status companies. Even though, there
are so many studies related to the corporate structuring, the studies will be focused on either the
stakeholders’ views on the corporate restructuring strategies at companies or the implementation
of the strategies at companies. Hence the present study has made an attempt to fill up the
research gap. The growth of corporate and growth of stakeholders out of restructuring are not
complementary to each other.
Objectives of the Study

1. To find out whether the respondent companies have complied with the provisions of
Companies Act with regard to Corporate Restructuring and also to ascertain whether the
Indian laws accompanying Corporate Restructuring is helpful.
2. To assess whether corporate restructuring has benefitted the companies in respect of core
strength, operational synergy and enhancement of allocation of managerial capability.

Corporate Restructuring as a Business Strategy

Corporate restructuring is the process of significantly changing a company's business
model, management team or financial structure to address challenges and increase shareholder
value. Restructuring may involve major layoffs or bankruptcy, though restructuring is usually
designed to minimize the impact on employees, if possible. Restructuring may involve the
company's sale or a merger with another company. Companies use restructuring as a business
strategy to ensure their long-term viability. Shareholders or creditors might force a restructuring
if they observe the company's current business strategies as insufficient to prevent a loss on their

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investments. The nature of these threats can vary, but common catalysts for restructuring involve
a loss of market share, the reduction of profit margins or declines in the power of their corporate
brand. Other motivators of restructuring include the inability to retain talented professionals and
major changes to the marketplace that directly impact the corporation's business model.
Corporate restructuring is the process of significantly changing a company's business model,
management team or financial structure to address challenges and increase shareholder value.
Corporate restructuring is an inorganic growth strategy.
Competition makes technological development. Competition from within a country is
different from cross country competition. Innovations and inventions do not take place merely
because human beings would like to be creative or simply because human beings tend to get
uninterested with existing facilities. Innovations and inventions do happen out of necessity to
meet the challenges of competition. Cost cutting and value addition are two strategies that get
highlighted in a highly competitive world. Monies flow into the stream of production in order to
be able to face competition and deliver the best possible goods at the convenience and
affordability of the consumers. Global Competition drives people to think big and it makes them
fit to face global challenges. In other words, global competition drives enterprises and
entrepreneurs to become fit globally. Thus, competitive forces play an important role. In order to
become a competitive force, Corporate Restructuring exercise could be taken up. Also, in order
to drive competitive forces, Corporate Restructuring exercise could be taken up.

Recent Trend in Merger and Acquisitions Laws 2015 in India

Merger and acquisitions has seen many ups and downs, and numerous vital developments
took place in 2015. Corporate Merger and acquisitions in India are very common, and India has
been updating its corporate Merger and acquisitions on regulations in India from time to time.
Recently, CCI (procedure in regard to the transaction of business relating to combinations)
Regulations, 2015 were formulated by the CCI with the objective of controlling the combinations
formulated in an ant-competition manner in India. Regulatory environment touching Merger and
acquisitions in India was also modernized in the year 2015 and stress upon technological
developments made. The SEBI is planning to use electronic initial public offer (IPO) in India. A
foreign investment in pharmaceuticals in India has been relaxed by RBI. Likewise, FDI in India
has also been relaxed in many areas. Naturally, lots of investments, IPO, private equity funds

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exchange and many more collaborative and cooperative activities took place in India in the year
2016.
Further, to modernize the banking contacts, an integrated banking law in India has been
planned. Similarly, the cap upon mobile banking financial transactions in India has been
removed by the RBI. These reforms would help Merger and acquisitions transactions in India in
a big way in a in the years to come. Although there was a slowdown in the Merger and
acquisitions deals in India in 2015 yet India’s energy, mining and utilities sector witnessed a
sound growth. The telecommunication sector faced the biggest hindrance in India and therefore
there were only very few Merger and acquisitions dealings in this sector in 2015.

Companies Act, 2013

The Companies Act 2013 is bring various provisions in relating to mergers, compromise
or arrangements in particularly to cross border mergers, time bound and single window
clearances the enhanced disclosures and simplified procedure for small companies etc.
Companies Act provides the Section 66 for reduction of share capital, Section for restriction on
purchase by company of its own share and provides in the Chapter XV for compromises,
arrangements and amalgamations from section 230 to 240. (Source: The ICSI material).

Conclusion
The present study is conclude that the companies 2013 emphasis the restructuring usually
takes place when a business is struggling and losing money. The business is being sprint, and
then build recommendations based on what they found that will help make the business run more
efficiently. A strong corporate restructuring firm will have experts in a wide diversity of areas
that can examine all aspects of a business to help find solutions. A good corporate restructuring
firm will not just identify problems of where money is being lost, but also offer solutions that a
company can implement in order to resolve those problems. They will also help a company
through the process of restructuring by developing forecasts of what to be expecting and making
sure the company is able to protect the capital available to make those changes. Corporate
restructuring can help restore, preserve and enhance the value of an organization in India.

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Alochana Chakra Journal ISSN NO:2231-3990

References:
 CA Sanjeev Kumar Gupta & Dr. Sambhit Kumar Mishra) “An Overview of Mergers and
Acquisition” 2012.

 Danish Khan, “American Tower Corporation looks at mergers and acquisitions to boost
presence in India”, ET Bureau Oct 2, 2014, 05.49AM IST; NEW DELHI.

 Face book Acquires Bangalore-Based Little Eye Labs, Mehak Chawla - Jan 8, 2014,
10.22AM IST.

 JingluJiang and BoLiu. et. al. (2019), “The impact of debt restructuring on firm
investment: Evidence from China Economic Modelling, Volume 81, September 2019,
Pages 325-337.

 Robert H.Porter, Mergers and coordinated effects, International Journal of Industrial

Organization, 24 January 2020.

 SzeKeeKoh And Robert B.Duran (2015), “Financial distress: Lifecycle and corporate
restructuring Journal of Corporate Finance”, Volume 33, August 2015, Pages 19-33.

 The Continue deals in M&A Sector for Economic Times (2013), New Delhi.

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