Debt restructuring is a process that allows a private or public company – or a sovereign entity – facing cash flow problems and financial distress Financial distress is a term in Corporate Finance used to indicate a condition when promises to creditors of a company are broken or honored with difficulty. Sometimes financial distress can lead to bankruptcy. Financial distress is usually associated with some costs to the company; these are known as costs of financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.
Replacement of old debt by new debt when not under financial distress is referred to as refinancing If the replacement of debt occurs under financial distress, it is instead referred to as debt restructuring.
Out-of court restructurings Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs. Alternate reasons for restructuring include a change of ownership or ownership structure, demerger, or a response to, also known as workouts, are increasingly becoming a global reality.[citation needed]
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