Debt restructuring is usually a more inexpensive and preferable alternative to bankruptcy. Companies use this scheme to avoid evasion on existing debt or to take advantage of a lower interest rate. The main costs associated with business debt restructuring are the time and effort to negotiate with bankers, creditors, vendors and tax authorities.
When companies are posed with high risks and are likely to go into liquidation, they may negotiate with creditors. Outstanding debts can be a hassle, but the restructuring of debt allows companies to alter the terms of their debt agreements to attain an advantage that allows them to remove unresolved debts. This scheme is beneficial to the entity, as it often results in a significant discount or a more flexible repayment schedule.
There are 2 types of debt restructuring: general and troubled.
General debt restructuring occurs when the creditor incurs no losses from the process. The creditor may extend the repayment period or lower interest rates so that the entity can pay the debt later.
Troubled debt restructuring refers to when the creditor incurs losses in the process. This may happen due to alterations to equity or declines in accumulated interest.
How can LehmanBrown Help?
LehmanBrown can help to facilitate this communication in a smooth and efficient manner. Effective debt restructuring depends on factors such as project cash inflow, debtor’s financial management, and debtor/creditor relationships, which we can take into account to help resolve debts. We can also help in debt mediation for smaller companies wanting to restructure their operations for a leaner position in the market.
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