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Restructuring means “to give a new structure to rebuild or rearrange the business for increased efficiency and profitability which is the main purpose of the entire business establishment. The meaning of the word is quit wide, depending on the requirement of the company. It can be happen in deferent types: Business, Financial, and Organizational in order to meet the changes in the business world during the life of the business. Simply stated, Corporate Restructuring is a comprehensive process, by which a company can consolidate its business operation and strengthen its position for achieving its short term and long term corporate objective. Few objectives of Corporate Restructuring are pointed below:

  • Orderly redirection of the objectives of the firm.
  • Surplus of one business can easily be transferred to another business for growth of another business.
  • Exploiting inter-dependence among present or prospective businesses within the corporate portfolio.
  • Risk is also can reduced by this process, because the risk is divided between both the businesses.
  • Core competencies of the companies can also developed.

When we say corporate it means a single company engages in single or multiple activities. It could also mean a group having many companies engages in similar or dissimilar business. The scope of corporate restructuring encourages cost reduction improving efficiency and increased profitability. When a company wants to grow and survive in a competitive environment, it needs to restructures and also focus on its competitive advantage. The survival of the company in this competitive world depends upon its ability to optimum use of their all resources.

The various needs for undertaking corporate restructuring are given as follows:

First take an example: Assume ABC Ltd. Has surplus fund but it has not any viable investment project to invest, whereas XYZ Ltd has identified viable investment project but has no money to investment, so in this situation Merger which is a part   of corporate restructuring if made between the companies, than it would be benefited for both the companies. Needs of corporate restructuring:

  • To focus on core strengths, operational synergy and efficient allocation of managerial capabilities.
  • Consolidation and economics of scale by expansion and diversion to exploit domestic and global market.
  • Revival and rehabilitation of a sick unit by adjusting losses of the sick unit with profit of a healthy company.
  • Acquiring constant supply of raw material and access to scientific research and technological developments.
  • Capital restructuring by appropriate mix of loan and equity funds to reduced the cost of servicing and improve return on capital employed.
  • Improve the performance to bring it at par with competitor by adopting the changes bought out by IT.


Section 390 to 396A in chapter V is a complete code in itself. It provides the law and procedure to be complied with by the companies for Compromise, arrangement and reconstruction which are all part of   restructuring. Rule 67 to 87 of companies rule 1959 provide the court procedure for approval of the government.

Section 391 of companies Act 1956 provides for all matters which the company court should consider and also the condition under which it has to exercise its power. Court for the purpose of section 391 to 394 of the Act would mean the High Court having jurisdiction over the registered office of the company.

Sec 391 provides that where a compromise or arrangement is proposed between company and its creditors and any class of them or member or any class of them, an application is required to be submitted to the court. On the submission of the application the court may direct to hold the meeting of creditor or member or class of them. The scheme must be approved in the meeting by majority in number representing 3/4 in value of the creditors or members. The scheme must disclose all the material fact, financial position and auditors report on the account of the company. The order made by the court should be filled with the ROC within 30 days unless it will not become effective. The copy of the order is also required to attach with all the copy of memorandum of the company, if there is default the person will be liable to punished.

Section 392 empowered the court to give direction and make modification in the order to operate the scheme smoothly. The court has also power to order to wind up the company if it satisfies that the scheme can not work satisfactory with or without modification.

Section 393 said that that the scheme must disclose all the relative fact as per the prescribe rules otherwise the scheme should not be approved.

Section 394 it is necessary to have the report from the ROC in case the scheme involves that the company is being wound -up and the report of the liquidator, in case the scheme involves dissolution of a company to ensure that the affairs of the company is not being conducted in a manner prejudicial to the interest of the member or public.

Section 396 of the companies act 1956 authorized Central Government to order amalgamation of two or more companies into a single company, if it satisfy that it is essential in the public interest, if the government so satisfied, it may passé an order of amalgamation it can pass such order either on its own motion or on an application of the company or creditor or member. Such order must publish in the official gazette; the order must also specify the position of the legal proceeding by or against the company………..



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CS Bijoy
Category Corporate Law   Report

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