New RBI Grade B Notification Out - 94 Vacancies - Prepare with Us!

    Register

    Question

    Read the following passage and answer the next 4 question (Q27-Q30) Corporate restructuring is an action taken by the corporate entity to modify its capital structure or its operations significantly. Generally, corporate restructuring happens when a corporate entity is experiencing significant problems and is in financial jeopardy. The process of corporate restructuring is considered very important to eliminate all the financial crisis and enhance the company’s performance. The management of the concerned corporate entity facing the financial crunches hires a financial and legal expert for advisory and assistance in the negotiation and the transaction deals. Usually, the concerned entity may look at debt financing, operations reduction, any portion of the company to interested investors. In addition to this, the need for corporate restructuring arises due to the change in the ownership structure of a company. Such change in the ownership structure of the company might be due to the takeover, merger, adverse economic conditions, adverse changes in business such as buyouts, bankruptcy, lack of integration between the divisions, over-employed personnel, etc.

    _________ is partial or complete disposal by sale, swap, close or bankruptcy of a business entity.

    A Merger Correct Answer Incorrect Answer
    B Spin-off Correct Answer Incorrect Answer
    C Demerger Correct Answer Incorrect Answer
    D Divestiture Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Divestiture is partial or complete disposal by sale, swap, close or bankruptcy of a business entity. A divestiture most frequently arises from a decision by management to stop operating a business unit because it is not part of core competency. A divestiture can also occur if a business unit is considered obsolete following an alliance or acquisition, if the disposal of a group increases the company's resale value or if a court orders a business unit to be sold to boost market competitiveness.

    Practice Next