Page 308 - AFM Integrated Workbook STUDENT S18-J19
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Chapter 14
Corporate reconstruction
2.1 Introduction
Companies in financial distress often undergo corporate reconstructions to enable
them to remain in business rather than go into liquidation.
This usually involves raising some new capital and persuading
creditors/lenders to accept some alternative to the repayment of their
debts.
However, corporate reconstructions can also be undertaken by successful
companies. The specific objectives of the reconstruction could be one or more of the
following:
To reduce net of tax cost of borrowing.
To repay borrowing sooner or later.
To improve security of finance.
To make security in the company more attractive.
To improve the image of the company to third parties.
To tidy up the statement of financial position.
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