Debt Restructuring is defined as a process where a company facing financial difficulties or financial distress, refinances its existing debt obligations to gain more flexibility in the short term period and make its debt loads manageable for the future. A company that goes for debt restructuring is facing financial issues that cannot be resolved easily; therefore it makes it even more important to restructure the debts in such a manner that it resolves the financial cash crunch.

Debt restructuring can be achieved in various ways by companies. At times, the creditors of the company may also impose the option of debt restructuring at the company, if the company fails to may scheduled payments to the creditors.

Debt restructuring involves direct negotiation with the creditors of the company. One important point to note here is that it is different from bankruptcy. At times, people tend to confuse both concepts. Bankruptcy is a legally enforced process, whereby a company becomes insolvent and goes for liquidation. However, debt restructuring is a completely different method and does not mean that the company is bankrupt, but only the fact that there is temporary financial distress in the company, and to overcome that distress the company is negotiating with the creditors.

Debt restructuring is also confused with debt refinancing. The main difference between the two concepts is that debt refinancing is only the replacement of old debt with new debt, whereas debt restructuring is a method, to plan a schedule for the repayment of existing debts.

Debt restructuring can be done through various methods. Some of the methods are listed below:

1. DEBT EQUITY SWAP: As the name suggests, a debt equity swap is when the creditors let go of a certain amount or percentage of your total debt, for the equity of the company. This is usually preferred by companies that have a large base of assets and liabilities.
2. BONDHOLDER HAIRCUT: This option is when a company wishes to negotiate with the bondholders, to offer repayment at a discounted level.
3. INFORMAL DEBT REPAYMENT AGREEMENT: this is a method wherein the companies directly ask for a lenient repayment mechanism, or at times even ask to write off some portion of the debt. This negotiation is done directly between the company and the creditor.

Debt restructuring can be a very effective way to strike out bankruptcy and acts as a win-win option for both the company, as well as the creditor.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.