When a company is on the verge of bankruptcy and has been suffering from a very great loss of profit and income for the past years, it may undergo the process of business reconstruction. In simpler terms, if the company’s financial sheets and flow state and show that it has loss a huge amount of accumulated assets and there is lesser hope in saving the entire company other than to have a business reconstruction. There are two kinds of business reconstruction: the external business reconstruction and the internal business reconstruction. Each of the kinds will be discussed below. Learn more
External Business Reconstruction
When a certain company has been suffering from a very big loss in the past years or even months, having an external business reconstruction could be the best option especially when things get hopeless. External business reconstruction is when a company sells its rights and its entire business to a new company owner. The new company formed will be the one to take over all the assets and liabilities of the previous company or the old company. In this process of business reconstruction, it is when the old company liquidates all its remaining assets for the new company’s purposes and uses. The old company or what is called the liquidated company is termed as the vendor company while the new company who buys the old company is termed as the purchasing company. Also, the shareholders of the old company or the vendor company will automatically become the shareholders of the purchasing company unless they would like to end contract and deal with the old company.
Internal Business Reconstruction
In the Internal Business Reconstruction, it is when there is a major change of the overall business management within the company for it to save what is left of the company. It is the process of re-organization within the company which means that the existing company will still continue its business and services without having it to sell to a new company. The concept of internal business reconstruction is ideal for those companies and business who are just suffering a few losses or minor losses, unlike the external business reconstruction where the company is experiencing a huge amount of losses in assets.
However, if all else fails, there are other formal business techniques which you can do as an option.