Reorganization definition
/What is a Reorganization?
A reorganization involves the reordering of a firm's activities to more tightly focus on its core capabilities. All other activities are eliminated, spun off, or outsourced. The remaining operations may be reshuffled into a different organizational structure , with revised employee job descriptions. Accompanying these changes is a revamping of the firm's capital structure , which may include the restructuring of debt agreements or the conversion of debt into equity . Creditors may also be contacted to discuss delayed payment terms. Reorganizations are closely associated with a Chapter 11 bankruptcy filing, though they may also be initiated when management wants to focus on improved profitability . If a reorganization is associated with a Chapter 11 filing, then the holdings of current shareholders will likely be wiped out. Ultimately, the main point behind a reorganization is to return a struggling business to long-term financial viability. It is commonly associated with the replacement of some or all members of the management team.
A common outcome of a reorganization is a significant reduction in employee headcount.
