Corporate financial restructuring
Corporate financial restructuring
Corporate financial restructuring is the process of evaluating and adjusting the structure of assets, liabilities, equity, and cash flow to improve solvency, reduce financial pressure, and enhance capital efficiency. Businesses may undertake financial restructuring when facing cash flow difficulties, high financial leverage, or when needing to prepare resources for a new growth phase.
Financial situation analysis
Before choosing a restructuring option, a company needs to conduct a thorough assessment of its current financial situation to identify the causes and extent of existing problems. This analysis should be based on financial statements, cash flow, asset structure, and debt obligations.
Businesses should conduct analysis based on each group of indicators to develop a suitable plan:
- Financial statement analysis: Evaluate the structure of assets, liabilities, equity, revenue, expenses, and profits.
- Cash flow analysis: Examine cash flow from operating activities, investments, and financing to assess the ability to generate and sustain cash flow.
- Analysis of solvency: Assess the ability to meet short-term debts and obligations due.
- Analysis of leverage and capital structure: Consider the debt-to-equity ratio, equity ratio, cost of capital, and degree of reliance on borrowed funds.
- Assessing asset utilization efficiency: Analyze inventory, accounts receivable, and other assets to identify resources that can be optimized or released.
Restructuring debts
Restructuring options
Debt restructuring is a key solution when businesses face pressure on cash flow or payment obligations. The plan should be developed based on the actual debt repayment capacity and agreement with creditors.
Depending on the type of debt and the relationship with the creditor, the business may consider:
- Adjust payment terms: An agreement to extend the repayment period or adjust the repayment schedule.
- Adjust interest rates and loan terms: Renegotiate the financial terms in accordance with the agreement and legal regulations.
- Restructuring commercial debt: Agree with the supplier on the terms, schedule, or method of payment.
- Refinancing: Replace or restructure the loan when a new option offers more suitable costs and conditions.
- Converting obligations into equity: This should only be done when legal requirements are met, approval is granted by the competent authorities, and it is appropriate for the type of business.
When restructuring debt, businesses need to create a cash flow plan and assess their ability to meet new obligations after reaching an agreement with creditors.
Adjusting equity capital
Equity capital can be adjusted to improve financial capacity, supplement resources, or rebalance the capital structure of a business. The method of implementation depends on the type of business and the restructuring objectives.
Businesses can consider options that are appropriate to their specific circumstances:
- Increase charter capital: Additional capital can be provided from new owners, members, or investors as required by regulations.
- Welcoming new investors: Attract additional funding from strategic investors or suitable partners.
- Adjusting ownership ratios: Transfer of capital contributions or shares in accordance with regulations.
- Reduce charter capital: This should only be done when the conditions and procedures corresponding to each type of business are met.
- Convert debt into equity or shares: This will be implemented only after agreement has been reached and all relevant legal conditions have been met.
Any increase, decrease, or change in capital structure must be considered in conjunction with its impact on the ownership, control, and obligations of the business.
Mobilizing new sources of capital
Businesses can choose funding sources based on cost, accessibility, and the extent of impact on ownership structure:
- Increase equity capital: Raise funds from owners, members, shareholders, or new investors.
- Credit and loans: Use bank loans or other credit sources that are within your ability to repay.
- Issuing securities: For businesses that meet the legal requirements regarding securities.
- Funding from partners: Business cooperation, joint ventures, or other suitable forms of collaboration.
- Other legitimate sources of funding: Choose based on the needs and characteristics of the business.
When choosing a source of funding, it is necessary to simultaneously evaluate the cost of capital, term, payment obligations, collateral, and the impact on control of the business.
Factors to consider when restructuring finances
An effective financial restructuring plan should be based on actual financial data and the specific goals of the business. Before implementation, the business should assess:
An effective financial restructuring plan should be based on actual financial data and the specific goals of the business. Before implementation, the business should assess:
- The ability to generate cash flow and pay off debt.
- Debt ratio and capital structure
- Profitability of the business
- Asset value and utilization efficiency
- Cost of capital
- The impact of the proposed solution on ownership and control rights.
- Related legal, tax, and accounting obligations
Financial restructuring is not a standalone legal procedure but can encompass a variety of transactions and decisions. Depending on the chosen approach, a business may need to comply with regulations concerning corporate governance, investment, securities, taxation, accounting, contracts, and other related professional fields.
For transactions involving capital changes, capital transfers, or share transfers, businesses need to review the current regulations of the 2020 Enterprise Law, as amended and supplemented by Law 76/2025/QH15 and related documents. Law 76/2025/QH15 takes effect from July 1, 2025.
