“Corporate restructuring is an effective tool to resurrect the distressed companies with a view of giving them a new lease of life, thus enabling them to positively contribute to the nation’s future social and economic development………….”
Many companies in an economic downturn are experiencing losses and may find themselves in a position of not being able to pay off their debts. Being in this position is precarious, as there is a risk of the company being wound up, causing undue hardship to employees, creditors and shareholders alike. In addition, creditors will seek the settlement of their debts, which can be distressing. This may eventually lead to an end of the company via a harsh liquidation process which is costly, less efficient and time consuming; but it is possible for a turnaround to be implemented via revival mechanisms
A state of insolvency can generally be categorised into any one of two types:
- there are insufficient assets to settle all debts, and
- there are sufficient assets to settle all debts with surplus available for
- distribution, but it may take time to realize such assets into cash.
In the first scenario, the question is whether the company is able to realistically propose a compromise with its creditors and begin its rehabilitation. Such companies will usually require an infusion of fresh capital or the implementation of new viable businesses from investors. In the second scenario, it would probably be possible to propose a settlement of the company’s debts without any other form of funding
In Malaysia, existing legislature provides for alternative remedial measures including negotiated debt reductions, freezing of further interest charges and deferment of the repayment schedule.
