What methods does debt restructuring include?

The existing current assets and part of the non-current assets of the enterprise must be reorganized if necessary to revitalize the enterprise. In fact, enterprise asset reorganization is essentially based on the connection of property rights. Currently, state-owned assets are the most important component of asset reorganization. What methods does Debt restructuring include?

What methods does debt restructuring include

The nine basic methods of debt restructuring include:

1. Debt transfer;

2. Debt offset;

3. Debt forgiveness;

4. Debt mixing;

5. Reduce debt;

6. Use non-cash assets to pay off debts;

7. Convert debt into capital;

8. Financing and debt reduction;

9. Modify other debt conditions.

1. Debt transfer

The so-called debt transfer refers to the act of an indebted enterprise transferring its liabilities to creditors to a third party. The debt transfer of an indebted enterprise is a transfer of claims for creditors.

The above-mentioned third parties are generally affiliated enterprises of the indebted enterprise Or intend to restructure other companies that are in debt. The third party is willing to contribute funds to purchase the creditor's rights and assume the creditor's rights of the indebted enterprise. As consideration for purchasing a creditor's right, a third party may pay the creditor in cash, in kind, securities or other property rights.

According to my country's "Contract Law" regarding debt transfer and According to the provisions on the transfer of creditor's rights, when an indebted enterprise transfers its debt, it must obtain the consent of the creditor. When a creditor transfers its claims against a debtor enterprise to a third party, the creditor shall notify the debtor enterprise. Otherwise, the transfer of debts or transfer of claims will not have legal effect. Debt transfer in progressWhen the principal debt is transferred, the subordinate debt related to the principal debt shall be transferred together with the principal debt, except that the subordinate debt belongs exclusively to the original debtor himself.

In addition, if laws and administrative regulations stipulate the transfer of debts Or if the transfer of creditor's rights requires approval, registration and other procedures, it should be handled in accordance with regulations. For example, according to my country's relevant foreign debt management regulations, the transfer of foreign debt must be registered with the Administration of Foreign Exchange for change of foreign debt.

2. Debt offset

The so-called debt offset refers to the parties’ mutual debts. The act of destroying each other by equal amounts. If the debt amounts of the two parties are not equal, the debtor still has the obligation to pay off the remaining debt that has not been offset.

According to the provisions of my country's "Contract Law", the parties If the debts are mutually due and the subject matter of the debts is of the same type and quality, either party may offset its own debts with the debts of the other party, except where offset is not allowed in accordance with legal provisions or the nature of the contract.

If a party claims set-off, it shall notify the other party. Moreover, the offset cannot be subject to conditions or time limits. If the parties owe each other debts, and the subject matter is of different type and quality, they may be offset by consensus reached by both parties. Debt offset can help save the cost of repaying debts, and for creditors, it can help ensure the timely realization of creditor's rights. In the practice of debt restructuring, debt offset is often used in conjunction with the restructuring method of debt transfer. This method of operation can find clear legal basis in our country's current laws.

3. Debt forgiveness

Debt forgiveness is also called debt relief. It refers to the act of a creditor abandoning its claims and exempting the debtor from its repayment obligations. In the practice of debt restructuring, affiliated enterprises with strong funds or the initiators of debt restructuring actions usually purchase the creditor's claims against the indebted enterprise first. Then exempt it.

4. Debt Confusing

Confusing debts means that the claims and debts belong to one person Legal facts. According to Article 106 of my country's "Contract Law", if the creditor's rights and debts belong to the same person, the rights and obligations of the contract are terminated, except where the interests of a third party are involved.

5. Debt reduction

Also known as "creditor's rights discount". The so-called debt reduction refers to the reduction of part of the creditor's rights by creditors, which to a certain extent reduces the burden of indebted enterprises. . Debt reduction is a debt restructuring method that is generally used when a company is insolvent.

In this case, once the enterprise goes bankrupt, creditors can only recover part of their rights, or even not recover any claims at all. Therefore, through appropriate credit concessions, it is helpful to avoid creditors from suffering greater losses .

6. Non-discriminationCash assets to pay off debts

If the debt-ridden company cannot pay in currency To use funds to pay related debts, you can negotiate with creditors to pay off debts with non-cash assets. In practice, companies in debt distress often have non-operating assets. If these assets can be stripped out and used to pay off debts, adjustments to the operating structure can be made while adjusting the financial structure.

7. Conversion of debt into capital

Converting debt into capital is also called debt capitalization, often referred to as " Debt-for-equity swap.”

Debt capitalization means that the debtor converts debt into capital, and the act of creditors converting debt into equity. Under the current circumstances, debt-for-equity swaps expressly stipulated in Chinese law are limited to debt-for-equity swaps between financial asset management companies and a handful of large state-owned enterprises.

8. Financing and Debt Reduction

Financing and debt reduction refers to increasing capital, expanding shares, issuing stocks or bonds, etc. Financing methods raise funds to repay debts. First, indebted companies can raise funds to repay debts by recruiting new shareholders, including venture capitalists and multinational investment banks, to expand their equity. After joining the WTO, China has become a hot spot for a new round of global investment. Domestic companies can easily obtain the funds needed for long-term development by absorbing foreign investment. Secondly, indebted companies can raise large amounts of capital by issuing shares to the public, thereby reducing the company's debt burden.

9. Modify other debt conditions

Debts between enterprises generally arise based on contracts, and contracts are the result of consensus reached by the parties. When one party due to Therefore, if you are unable to fulfill the terms of debt repayment stipulated in the contract, you can negotiate with the other party to change the contract and modify other debt conditions. Modifying other debt conditions mainly includes: reducing or exempting part of the interest on the original debt, modifying the interest rate, extending the debt repayment period, extending the debt repayment period and adding interest, extending the debt repayment period and reducing the debt principal or debt interest, etc.

The above is provided by the editor of the Legal Savior Network We have compiled some relevant points on debt restructuring, and I hope they can be helpful to you.