3 - Failing-firm defence

Summary

Capitalism without bankruptcy is like Christianity without hell.

Frank Borman

Today, certain people file for bankruptcy, businesses and individuals, and it no longer has the stigma it once had. Now it's almost considered wise, a way to regroup and come back again.

David Dinkins

Acquisition of a failing firm is always efficient.

Prof. Fred S. McChesney

Introduction

Nowadays, during this period of crisis, we face global restructuring of industries that may be the most significant economic change of the last decades. Fierce competition from imports, severe overcapacity in some industries and technological advancements are only some of the features that characterize contemporary markets. Distressed companies on the verge of insolvency are a common phenomenon observed in both developed and developing economies. Companies that are in distressed financial conditions may choose to embark on a restructuring process in order to ensure their viability and profitability.

Restructuring is often done as part of insolvency procedures. Restructuring is the term for the act of fully or partially dismantling and reorganizing a company. It might involve the selling of sectors or units of the company and severe job losses. Restructuring of the liability and of stockholders' equity components of a financial balance sheet is normally undertaken because the company does not generate enough cash flow to service its debt and other liabilities.