Process of Corporate Restructuring: Legal Framework & Procedures

The process of corporate restructuring is where a company changes how it is organized, whether it’s its legal setup, ownership, operations, or finances to perform better, fix financial problems, or meet specific goals. This guide explains the process in simple terms, focusing on the main laws in India, including the Insolvency and Bankruptcy Code, 2016 (IBC), the Companies Act, 2013, and recent updates to these rules.

Elevate your career with our Advanced Certification Program in Mergers & Acquisitions designed to transform your professional journey in just six months. This high- engagement course emphasizes real-world applications and features master classes from NLU and industry partners led by expert faculty. 

Laws for Corporate Restructuring

Corporate restructuring in India means making big changes to how a company is structured to help it do better, solve money troubles, or achieve important business aims. The main laws that guide this process are:

• Insolvency and Bankruptcy Code, 2016 (IBC): The Insolvency and Bankruptcy Code was created to handle situations where companies, partnerships, or individuals can’t pay their debts. It started working fully on December 1, 2016, and added rules for personal guarantors (people who promise to pay a company’s debts) on December 1, 2019. It’s the main law for companies in serious financial trouble that need a formal process to reorganize.

• Companies Act, 2013: This law allows companies that aren’t in financial trouble to make voluntary changes, like merging with another company, splitting into smaller companies, or reorganizing in other ways. These changes are covered under Sections 230-234 of the Act.

• Informal Workouts: These are agreements between a company and its lenders (like banks) to sort out debt issues without going to court. They’re guided by rules from the Reserve Bank of India (RBI) set on June 7, 2019, and apply mainly to banks and some non-banking financial companies. These agreements need all lenders to work together.

Enroll in Corporate Law Courses.

Formal Restructuring Process Under the IBC

When a company is in serious financial trouble, the IBC provides a clear process called the Corporate Insolvency Resolution Process (CIRP) to help fix things. Here’s how it works, including the amendments made in 2025:

1. Starting the Process (Initiation)

The process begins when the company (with agreement from 75% of its shareholders) or its creditors (those it owes money to) files a case with the National Company Law Tribunal (NCLT), a special court for company issues.

This can happen if the company fails to pay debts of more than INR 10,000,000 (1 crore rupees).

2. Pause on Legal Actions (Moratorium)

Once the NCLT accepts the case, it puts a “moratorium” in place, which means that no one can start or continue lawsuits against the company, creditors can’t take the company’s assets to recover their money and n o one can demand immediate repayment of debts. This gives the company time to work on a solution without pressure from creditors.

3. Appointing a Manager (Resolution Professional)

The NCLT appoints an independent expert, called a resolution professional, to run the CIRP. This person works with a Committee of Creditors (CoC), made up of the company’s financial creditors (like banks), and is overseen by the NCLT. As of 2025, people or companies providing temporary funding (interim finance) during this process can attend CoC meetings to listen but can’t vote, which makes funding decisions clearer.

4. Making a Plan (Resolution Plan)

Resolution planning is when creditors or investors come up with plans to save the company, like restructuring debts or selling parts of the business. The CoC must approve a plan with at least 66% of their votes (based on how much money they’re owed).

• New rules from 2025 allow “part-wise resolution,” meaning the company or its assets can be split up and sold separately, which attracts more buyers and increases the chances of recovery.

• The new rules also ensure fair payment schedules, giving priority to creditors who don’t agree with the plan, so they get their share based on what they’re owed.

• All plans, even those that don’t meet all rules, must be shown to the CoC with explanations, so they can make informed choices.

5. Getting Court Approval (NCLT Approval)

The approved plan goes to the NCLT for final approval and if the NCLT agrees, the plan becomes legally binding for everyone involved i.e. shareholders, creditors, employees, and others. Creditors who didn’t support the plan are guaranteed at least what they’d get if the company were liquidated (sold off completely).

6. Putting the Plan into Action (Implementation)

The company follows the plan, which might include swapping debt for ownership shares, selling assets, or changing how it operates. For small businesses (micro, small, and medium enterprises, or MSMEs), there’s a simpler “pre-packaged” process where a plan is prepared before filing with the NCLT, and certain related parties can suggest plans if they’re not banned under the IBC.

Read to learn more about Merger and Acquisition Process

Formal Restructuring Under the Companies Act, 2013

For companies that aren’t in financial trouble but want to make changes, the Companies Act, 2013, offers a way to do this through “schemes of arrangement or compromise.” Here’s how it works:

1. Coming Up with a Plan (Proposal): The company, its creditors, or investors suggest a plan, which could involve merging with another company, splitting into smaller companies, or other big changes.

2. Getting Agreement from Stakeholders (Approval by Stakeholders): Everyone affected by the plan like shareholders and creditors must vote on it. Each group needs to approve the plan with a majority of people and at least ¾ of the total value of their shares or debts, ensuring most people agree.

3. Getting Court Approval (NCLT Sanction): The plan must be approved by the NCLT, which checks that it’s fair to everyone involved. Unlike the IBC process, there’s no moratorium, so creditors can still take action, and there’s no way to force a plan on groups that don’t agree, making it less useful for companies in financial trouble.

4. Putting the Plan into Action (Implementation): Once the NCLT approves, the plan is binding, and the company carries out the changes.

Learn about the Principles of Corporate Governance.

Informal Workouts

Informal workouts are when a company and its lenders (like banks) negotiate directly to fix debt problems without going to court. This is guided by RBI rules from June 7, 2019, and works like this:

• Lenders have 30 days after a company misses a payment to come up with a plan to fix the issue.

• There’s no moratorium, so creditors can still take legal action, and this process only works for banks and some non-banking financial companies, not other creditors.

• It’s faster and more flexible than court processes, but it offers less legal protection and only works for companies with a few lenders.

Forms of Corporate Restructuring

Corporate restructuring can happen in many ways, each with its own goal and rules. Here’s a table explaining the main types:

These types are controlled by different laws, with the Companies Act, 2013, and IBC, 2016, being the most important. For example, mergers and demergers need NCLT approval under the Companies Act, while financial restructuring for struggling companies uses the IBC’s CIRP process.

Summary

Corporate restructuring in India is a strong system that helps companies in trouble or those wanting to make changes. The IBC’s CIRP, improved by 2025 updates, provides a clear way to handle financial distress, while the Companies Act supports voluntary changes like mergers. Recent changes have made the process more flexible, open, and attractive to investors, showing that India’s system for handling company problems is getting better.

Related Posts:

• Difference Between Merger and Acquisition

• Types of Acquisitions

• Types of Mergers

• Recent Mergers and Acquisitions in India

• ADIA Investment in Lenskart Case Study

Process of Corporate Restructuring: FAQs

Q1. What is the process of restructuring?

Restructuring modifies a company’s legal, financial, or operational structure to achieve goals or address distress. IBC handles insolvency via NCLT filing, moratorium, resolution plan, and implementation. Companies Act, 2013 covers voluntary schemes like mergers with stakeholder and NCLT approval. Informal restructuring uses RBI-guided negotiations.

Q2. What are the four steps of restructuring?

Under IBC’s Corporate Insolvency Resolution Process: file NCLT application for defaults over INR 10,000,000, impose moratorium, approve resolution plan (66% CoC vote, NCLT sanction), and implement plan (e.g., debt swaps, asset sales).

Q3. What is the process of corporate debt restructuring?

Under IBC, corporate debt restructuring starts with NCLT filing for defaults, appoints a resolution professional, imposes a moratorium, approves a resolution plan (66% CoC, NCLT sanction), and implements it, often with debt-for-equity swaps or asset sales.

Q4. What are the steps to restructure an organization?

Organizational restructuring begins with planning objectives (e.g., cost reduction), secures stakeholder approval (majority, ¾ value) under Companies Act, 2013, obtains NCLT sanction, and implements changes like layoffs or department reorganization.