This article was originally published in BDO Spotlight - January 2025
A multinational corporation, once a global leader in its industry with nearly 50% market share, struggled to innovate and failed to adjust its business and operational strategies to meet changing market demands. This resulted in its rapid decline — a poignant reminder that even the most dominant companies can falter if they do not, or are unable to, embrace change.
Closer to home in Singapore, the number of applications filed to put companies under compulsory liquidation rose by an average of nearly 7% annually between 2020 and 2023. This indicates that many businesses in Singapore have also failed to adapt to evolving market conditions and financial pressures, compounded by the adverse impact caused by the COVID-19 pandemic.
However, not all hope is lost. Corporate restructuring could hold the key to revitalising an ailing company - boosting performance, streamlining operations, and unlocking untapped potential.
What is Corporate Restructuring?
Corporate restructuring involves making strategic changes to a company’s structure or operations to:
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Increase operational efficiency; and/or
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Improve financial health by adjusting capital structure, renegotiating debt, or repurchasing shares.
Why Should Your Company Consider Restructuring?
In times of expansion and growth, corporate restructuring can harness several benefits for your company, such as:
1. Strengthening Organisational Strategy
Restructuring helps streamline processes and optimise resource allocation, aligning your operations with long-term objectives. This boosts operational efficiency and maximises growth potential.
2. Market Share Augmentation
Strengthen your market position to secure a larger market share through strategic restructuring, such as mergers or acquisitions. This can reduce competitive pressure, improve efficiency, lower costs, enhance product offerings and boost customer satisfaction.
3. Diversification
Reduce dependence on a single business line and enhance resilience to economic downturns by entering diverse markets or industries. This approach spreads risk and creates new growth opportunities.
4. Reverse Synergy
Focus on core strengths by divesting or eliminating underperforming areas of the business, leading to improved profitability and better resource allocation.
5. Tax Advantages
Take advantage of tax incentives and deductions associated with restructuring activities, such as asset sales or debt restructuring, to improve your company's financial performance.
Strategic business initiatives can serve as powerful tools to drive growth, enhance competitiveness, stabilise your company’s financial position and strengthen your company’s position in the marketplace. Consider aligning some of the following strategic business moves with your long-term objectives to unlock benefits such as increased efficiency, expanded market presence, and profitability:
1. Mergers and Acquisitions
This involves merging two companies or one acquiring another, enabling growth, customer expansion, and increased market share by leveraging combined strengths such as resources and technology.
2. Joint Ventures
Two companies can collaborate on a specific project without merging, sharing resources, knowledge, and risks. This approach is often used to enter new markets or develop innovative products.
3. Divestment
Selling non-core or underperforming assets or business units allows your company to focus on more profitable and strategic areas, freeing up resources and cutting costs. Divestments can also create opportunities to reinvest resources into high-growth areas, strengthen core capabilities, and enhance shareholder value.
In times of financial distress, corporate restructuring can provide critical support to your company by addressing key challenges and creating opportunities for recovery and growth. By realigning operations, renegotiating financial obligations, and streamlining resources, restructuring enables management to focus on core strengths, eliminate inefficiencies, and implement strategies that restore profitability and resilience. Consider how corporate restructuring can assist your company in several impactful ways:
1. Improving Cash Flow
Restructuring operations, such as eliminating unprofitable projects, can improve cash flow by reducing costs, optimising working capital, and enhancing debt repayment capabilities.
2. Bolstering Financial Position
If your company is consistently incurring losses, it’s time to stop the bleeding. Address the root causes to minimise losses and prevent further deterioration of financial position. Restructuring initiatives, such as cost-cutting, asset sales, or debt restructuring, can provide relief.
3. Saving an Insolvent Company
Turn around a struggling business by implementing comprehensive restructuring plans that address financial challenges and improve operational efficiency, thus helping your company stay afloat.
In challenging times, implementing the right restructuring strategies can be the key to not only keeping your company afloat but also positioning it for long-term growth. Whether your company is navigating financial distress, adapting to market shifts, or seeking to enhance operational efficiency, restructuring provides a pathway to stabilise and revitalise your business. Below are some restructuring strategies to support your company in overcoming immediate challenges while laying the groundwork for sustainable growth:
1. Debt Restructuring
This valuable tool improves financial health by renegotiating loan terms - such as extending repayment periods or lowering interest rates - to enhance cash flow and reduce financial stress. This process may also involve converting debt into equity.
2. Judicial Management
If your company is facing financial distress, you may consider appointing an independent judicial manager to manage its affairs, business and assets. This can provide temporary relief and protection for your company by shielding it from legal actions initiated by third-party creditors while it focuses on financial recovery and rehabilitation. The judicial manager's role is to stabilise the company, manage its operations, and develop a plan to return it to financial health. This period of protection allows the company time to reorganise without the immediate threat of lawsuits or asset seizures from creditors.
3. Scheme of Arrangement
Alternatively, you may consider a court-approved scheme of arrangement between your company and its creditors. This process allows your company to renegotiate its financial obligations to creditors, such as adjusting repayment terms, reducing debt, or extending repayment timelines. Unlike judicial management, the company’s existing management retains control over the business operations during the scheme.
Conclusion
Everything changes with time, and change is the only constant. Corporate restructuring empowers your company to adapt and build resilience in this ever-changing business environment, enabling your company to scale and soar to greater heights.
Do not let your business stagnate - take action today. Contact us to explore how corporate restructuring can drive your company’s growth and resilience.
Article contributed by Kazel Voon (Assistant Manager) and Jonathan Ooi (Senior), Restructuring & Forensic.