For this essay, we will examine the U.S. bankruptcy code and the available debt restructuring options. The U.S. Congress has the authority to enact laws regarding bankruptcy for the country. The most recent law is the Bankruptcy Reform Act of 1978. The U.S. bankruptcy code governs the procedures that businesses and individuals must follow when filing for bankruptcy. The most recent amendment to this law is the Bankruptcy Abuse Prevention and Consumer Protection Act (2005). Organizations that file for bankruptcy in the U.S. can choose from several types of restructuring to improve their credit scores. Debt restructuring for organizations is more challenging. Court-appointed trustees may even have to sell part of the company to pay creditors.
U.S. bankruptcy code and debt restructuring options
SOVEREIGN DEBT RESTRUCTURING OPTIONS
Most types of restructuring involve over-leveraged companies that are unable to service current debt levels. The agreement of parties may mean rescheduling debts to extend maturity dates or debt waivers for more extensive restructurings. This helps to avoid the acceleration of debts into other layers of debt. One of the most common debt restructuring options is to transfer the company’s assets or business to a newly formed company. Here, financial creditors may exchange the debt for debt or equity in the new company. The issue of hold-outs may cause problems not addressed in the U.S. bankruptcy code. This is when one or more creditors may strategically hold out from agreeing to a reasonable debt restructuring plan.
sovereign debt restructuring options
TYPES OF RESTRUCTURING FOR BUSINESSES AND THE U.S. BANKRUPTCY CODE
The U.S. bankruptcy code allows for different types of restructuring for businesses. These include mergers and acquisitions, legal and financial restructuring, turnaround, repositioning, cost restructuring, divestments, and spin-offs. Often, companies opt for the turnaround type of restructuring. This is where decision-makers restructure organizational administrations, operations, and products that are performing poorly. Repositioning involves moving a business unit to a new operational model for better performance. Divestment is usually the last debt restructuring option considered by top business decision-makers. Here, shareholders decide to sell or close business units that are non-strategic and unprofitable. In some cases, organizational leaders opt for spin-offs. This is where they restructure a business unit to become its own company while retaining some ownership.
types of restructuring for businesses
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