What are the ways of debt restructuring?

Debt restructuring means that when the debtor has financial difficulties, the creditor makes concessions in accordance with the agreement reached with the debtor or the ruling of the court, that is to say, as long as the original debt repayment conditions are modified, that is, if the debt repayment conditions determined during debt restructuring are different from the original agreement, they are all regarded as debt restructuring. Let's take a look at the ways of debt restructuring.

The basic principles of debt restructuring

The general procedure of debt restructuring is to write off the lost or irrecoverable assets and the debit balance in the profit and loss account and revalue the assets to determine their current value to the enterprise. Determine whether the enterprise can continue to trade without further financing, or if further financing is needed, determine the amount, form and person who can provide financing. According to the scale of debt cancellation and the amount of financing required, the enterprise shall determine a reasonable way to disperse the impact of write-off among the parties providing funds for the company.

The legal significance of debt restructuring

In essence, debt restructuring is a legal activity, which aims to change the original contractual relationship between the creditor and the target company (debtor) in a certain way. For example, the reorganization in the way of asset liquidation is the behavior that the creditor and the target company change the creditor's rights and debt contracts and perform them in accordance with the contract. the reorganization in the way of transforming the creditor's rights into equity investment relationship between the creditor and the target company, and the reorganization by modifying the debt conditions is a change of rights and obligations under the original contract between the creditor and the target company. On the other hand, the core of the contracting process of debt restructuring between creditors and target companies is the re-confirmation of creditor's rights and debts between the two parties, which itself reflects the emergence of a new legal relationship.

What are the ways of debt restructuring?

1. Paying off debts with assets: the way of debt restructuring in which the debtor transfers his assets to the creditor to pay off the debt. The assets that debtors usually use to repay debts are mainly cash, inventory, financial assets, fixed assets, intangible assets and so on. The settlement of debts with cash usually refers to the payment of debts with cash less than the book value of the debt. if the debt is repaid with the same amount of cash, it does not belong to debt restructuring.

2. Debt to capital: debt restructuring in which the debtor converts the debt into capital and the creditor converts the creditor's rights into equity. However, if the debtor converts the convertible bonds payable into capital according to the conversion agreement, it belongs to the debt capital under normal circumstances and cannot be treated as debt restructuring.

3. Modify other debt conditions: reducing the principal of the debt, lowering the interest rate, exempting the unpaid interest, etc.

4. The combination of three ways: the form of debt restructuring in which the above three ways are used to pay off debts together.

Part of ① 's debt is paid off by assets and the other part is capitalized.

Part of the ② debt is paid off by assets, while the other part modifies other debt conditions.

Part of the ③ debt is capitalized, while the other part modifies other debt conditions.

Part of the ④ debt is paid off by assets, part is converted into capital, and the other part modifies other debt conditions.