Chapter 10 : Corporate Reorganisation
Capital Restructuring Scheme
“ A capital reconstruction scheme is a scheme whereby a company reorganizes its capital structure”.
Procedure of designing a capital restructuring scheme:
1. Calculate what each party’s position would be in a liquidation
2. Assess possible sources of finance
3. Design the reconstruction
4. Assess each party’s position as a result of the reconstruction
5. Check that the company is financially viable.
Exit strategies for a venture capitalist:
1. Sale of shares to public or institutional investors following a flotation
2. Sale of shares to another company
3. Sale to company itself or its owners
4. Sale to institution management
Divestment- (selling of business)
“Divestment is a proportional or complete reduction in ownership stake of an organization” e.g.
Management Buy Out (MBO)
Reasons for Divestment:
To concentrate on a particular part of business
Selling a loss making unit
Selling a subsidiary with high risk
Selling a subsidiary at profits
Provide an exit route for investors
Remove value gaps to avoid takeover
Demerger is splitting up of a corporate body into two or more separate and independent bodies.
Sell off is a form of divestment involving the sale of a part of a company to third party usually another company.
Liquidation is extreme form of liquidation where the entire business is sold and funds are distributed to shareholders in their
Management Buy Out. (MBO) management buyout is the purchase of all or part of a business from its owners by its managers.
Management Buy Out.(MBI) where