Corporate restructuring

Corporate restructuring (기업구조조정/企業構造調整) refers to the act of reorganizing the legal or operational ownership and structure of a company for the purpose of: In particular, making a turnaround from an insolvent company is called corporate rehabilitation. Corporate restructuring may also be described as debt restructuring and financial restructuring.
 * making it more profitable;
 * better organized for its present needs;
 * changing ownership or ownership structure; or
 * responding to insolvency or other crisis in the business environment.

Ever since the IMF Crisis in the late 1990, corporate restructuring has been a routine work in the Korean business community. It has beem promoted and facilitated by the Corporate Restructuring Promotion Act (기업구조조정촉진법/企業構造調整促進法).

Key words
corporate restructuring, insolvency, ownership structure, debt/equity swaps, sunset clause

Organizer and Strategy
Executives involved in corporate restructuring often hire financial and legal advisors to assist in the transactions and negotiation. It generally involves financing debt, selling portions of the company to investors, and reorganizing or reducing operations.

Under the Corporate Restructuring Promotion Act, the principal creditor bank may independently commence the administrative proceedings against an enterprise showing signs of insolvency for the business normalization of the enterprise. Article 14 of the Act.

The basic nature of corporate restructuring is a zero-sum game. Strategic restructuring reduces financial losses, simultaneously reducing tensions between debt and equity holders to facilitate a prompt resolution of a distressed situation.

Debt restructuring
Corporate debt restructuring is the reorganization of companies’ outstanding liabilities. It is generally a mechanism used by companies which are facing difficulties in repaying their debts.

In the process of restructuring, the credit obligations are spread out over longer duration with smaller payments. This allows company’s ability to meet debt obligations. Also, as part of process, some creditors may agree to exchange debt for some portion of equity.

It is based on the principle that restructuring facilities available to companies in a timely and transparent matter goes a long way in ensuring their viability which is sometimes threatened by internal and external factors. This process tries to resolve the difficulties faced by the corporate sector and enables them to become viable again.

Restructuring steps
In general, corporate restructuring is conducted in the following steps:
 * Ensure the company has enough liquidity to operate during implementation of a complete restructuring
 * Produce accurate working capital forecasts
 * Provide open and clear lines of communication with creditors who mostly control the company's ability to raise financing
 * Update detailed business plan and considerations.

Corporate restructuring fund
A corporate restructuring fund (CRF, 기업구조조정기금/企業構造調整基金) refers tp a special fund comprising various funds from financial institutions at home and abroad in order to facilitate corporate restructuring nationwide. At first, the corporate restructuring fund was established to help those companies with a high growth potential to survive liquidity shortage. The fund was operated so as to convert the short-term liabilities of target companies to the long-term ones, or to invest in the shares of promising companies.

In general, more than 50 percent of the total assets should be allotted to capital increase, bond underwriting and subscription to new securities issued by the companies which do not belong to the large business groups.