1. Corporate Insolvency and
Restructuring
A necessary concomitant of the 21st Century

2. What is Corporate Restructuring?
Corporate Restructuring is a set of discrete, decisive
measures taken in order to increase the competitiveness of
the enterprise and thereby enhance its value
- Crum and Goldberg
Study by the Harvard Business School revealed -
Corporate Restructuring has enable thousand of organizations around the
world to respond more quickly and effectively to the new opportunities and
unexpected pressures which thereby help in the re-establishment of their
competitive advantage.

3. Rules and Enactments relating to Corporate Restructuring in India
• Companies Act, 1956
• Companies Act, 2013
• Competition Act, 2002
• Sick Industrial Companies(Special Provisions) Act, 1985
• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002
• The Enforcement of Security Interest and Recovery of Debts Laws
• Foreign Exchange Management Act
• FDI regulations
• Foreign security regulations
• SEBI Act, 1992
• SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
• Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009
• Income Tax Act, 1961
• Indian Stamp Act, 1899

4. Major Corporate Restructurings witnessed by the Indian financial market
1. Demerger of the Larsen & Toubro.
2. Demerger of the Siemens India Pvt. Ltd.
3. Demerger of the Reliance Industries Limited.
4. Cross border merger of the Vodafone and Essar Steel forming the new
telecom business with the name Vodafone-Essar.
5. Vijay Mallya’s United Breweries Ltd.
6. Takeovers of companies like Dunlop, Ceat, Philips by the RPG group of
Companies.
7. Merger and Acquisition of the Ranbaxy Laboratories Limited.
8. Even the Core companies like Jindal Vijaynagar Steel Limited (JVSL),
Tata Iron and Steel Company (TISCO), Gujarat Ambuja Cements Limited
(GACL), Hindustan Lever Limited (HLL), Indian Oil Corporation Limited
(IOC), underwent Corporate Restructuring.

5. Table 1 Number of Mergers and Takeovers in India from 1988 to 2003
Years Number Change in %
• 1988
• 1989
• 1990
• 1991
• 1992
• 1993
• 1994
• 1995
• 1996
• 1997
• 1998
• 1999
• 2000
• 2001
• 2002
• 2003
15
18
25
71
135
288
363
430
541
636
730
765
1,177
1,045
838
834
--
20.00
38.90
184.00
90.10
113.30
26.00
18.50
25.80
17.60
14.80
04.79
53.86
-11.21
-19.81
-.48

6. Table 2 The Top 10 Acquisitions made by Indian Companies Worldwide
Acquirer Target Company Country
targeted
Deal
Value
($mln)
Industry
• Tata Steel
• Hindalco
• Videocon
• Dr. Reddy’s Labs
• Suzlon Energy
• HPCL
• Ranbaxy Labs
• Tata Steel
• Videocon
• VSNL
Corus Group Plc
Novelis
Daewoo Electronics Corp.
Betapharm
Hansen Group
Kenya Petroleum Refinergy Ltd.
Terapia SA
Natsteel
Thomson SA
Teleglobe
UK
Canada
Korea
Germany
Belgium
Kenya
Romania
Singapore
France
Cananda
12,000
5,982
729
597
565
500
324
293
290
239
Steel
Steel
Electronics
Pharmaceutical
Energy
Oil and Gas
Pharmaceutical
Steel
Electronics
Telecom

7. Table 3: Financial Highlights of Larsen and Toubro since 2009 (after restructuring)
Particulars March 2013 March 2012 March 2011 March 2010 March 2009
Operational and Financial Ratios
• Earnings Per Share (Rs.)
• CEPS (Rs.)
• DPS (Rs.)
• Book NAV/Share (Rs.)
• Tax Rate(%)
Margin Ratios
• Core EBITDA Margin (%)
• EBIT Margin (%)
• Pre-Tax Margin (%)
• PAT Margin (%)
• Cash Profit Margin (%)
Growth Ratios
• Net Sales Growth (%)
• Core EBITDA Growth (%)
• EBIT Growth (%)
• PAT Growth (%)
• EPS Growth (%)
Financial Stability Ratios
• Total Debt/Equity (x)
79.80
62.06
18.50
466.12
26.83
10.30
12.71
10.92
7.99
9.32
14.49
8.49
10.40
10.19
9.65
0.31
72.77
56.13
16.50
404.24
29.38
11.81
13.17
11.74
8.29
9.59
21.10
12.12
6.90
12.60
11.95
0.40
65.01
49.90
14.50
352.27
32.93
12.72
14.95
13.32
8.94
10.29
18.55
-0.66
1.57
-6.65
--7.67
0.33
70.41
51.53
12.50
298.56
27.90
13.06
17.45
15.74
11.35
12.46
9.12
46.76
47.54
56.50
52.21
0.38
46.26
34.32
10.50
208.28
31.25
11.39
12.87
11.48
7.89
8.78
35.70
33.42
32.71
24.65
-37.78
0.54

8. Number of times the Companies Act, 1956 has been amended are as shown below
Enactments Year
Companies Act 1956
2013
Companies Amendment Acts 1996(notable)
2006
Various other amendments
made to the Companies Act,
1956
1982
1986
1988(notable)
1990(notable)
1999
2000(notable)
2002
2011(notable)
2012

9. What is new in the Act?
• Several new provisions for investors protection
• Better corporate governance
• Corporate social responsibility
• Class action suit – a key weapon for individual shareholders to take collective action against
errant companies
• Introduced a new concept known as a single person company. A Private Company with only
one member or director, who will be enjoying exemption from various filings, meetings,
compliances etc. This is a welcome move in line with the concept followed globally. It is
beneficial for sole proprietors
• The Act seeks to amend the existing provisions applicable to sick companies and amongst
other, has changed the applicability as well as the exiting criteria for determining sickness from
‘net worth erosion’ to ‘inability to pay debt’.
• National Company Law Tribunal: A dedicated forum to deal with company law matters
including mergers, demergers, capital reduction, etc. It will facilitate speedy disposal of cases.

10. • Restriction on number of investment companies: Investment through more than
two layers of investment companies is not permitted.
• Fast track merger: A provision proposing speedy mergers between certain
companies, viz., small private companies and holding and wholly-owned
subsidiaries
• Cross-border mergers: Merger between Indian companies and foreign companies
with prior approval of the RBI is permissible.
• Purchase of minority shareholding: Majority shareholders who have, inter-alia,
acquired majority stake (at least 90%) through amalgamation, share exchange,
conversion etc. to compulsorily notify their intention to buy-out minority
shareholders
• Shareholders’ democracy: Concept of class actions suits introduced. Threshold for
raising objections to the scheme of arrangement by minority
shareholders’/creditors’ has been prescribed.

11. Suggestions
The following measures will help to alleviate the problems of Corporate Restructuring in India:
• The federal structure of India with hostile political environment makes it inevitable for government
and leadership to take lead in establishing restructuring priorities, addressing market failures,
reforming the legal and tax systems especially in the wake of financial crisis when corporate distress
is pervasive.
• Corporate governance must be brought up to international standards to provide incentive for viable
firms to restructure their balance sheets and maximize their value.
• A supportive legal, regulatory, and accounting environment is to be created for successful corporate
restructuring. Important legal aspects of restructuring include foreclosure standards, foreign
investment rules and mergers and acquisition policies.
• Restructuring should be based on a holistic and transparent strategy encompassing corporate and
financial restructuring.
• Restructuring planning should include conducting proper due diligence, effective communication
during the integration, committed and competent leadership; speed with which the integration
plan is integrated facilitates the success of Corporate Restructuring.
• Effective measures should be taken quickly to offset the social costs of crises and restructuring.
Government should be prepared to take on large scale roles as soon as a crisis is judged to be
systematic.

12. Conclusion
Finally, I would like to conclude by stating that corporate restructuring has become very popular
over the year due to rapid changes in the business environment. The competition amongst firms
is much more and is not limited within countries. Many facets for the proper and profitable
conduction of business have opened up for investors and businessmen which include cross
border mergers and takeovers. But, generally the primary objective of restructuring is wealth
maximisation of shareholders by seeking gains in terms of synergy, economies of scale, better
financial and marketing advantages, diversification and reduced earnings volatility, improved
inventory management, increase in the domestic market share and also to capture fast growing
international markets abroad. But, making the restructuring work successfully is not an easy task
to accomplish as by restructuring, not only that two or more organisations are joining or
separating but there is an ongoing process of the integration of people from such firms
belonging to different cultures, with different attitudes and mind sets and to channel out proper
communication with integration and commitment towards work is the main pathway towards
success. Now, these restructurings even help overcome a company being insolvent and saving
lives but the main aspect necessary to be analysed before such restructuring is the cultural and
people issues of both the concerned firms for proper post-restructuring integration which
thereby helps a company/firm succeed incurring profits and carrying out its social responsibility.