The balance sheet problem
Financial restructuring deals with how a company is funded rather than how it operates. Common steps include converting debt to equity, raising new capital from existing or outside investors, refinancing, and selling non-core assets to pay down obligations. Each step reshuffles who owns what and who gets paid first. Existing shareholders are often diluted, and lenders who convert debt may end up controlling the company. Preferred stock, convertible notes, and warrants can carry consent rights or anti-dilution protections that limit what can be done without certain holders. Because those effects are permanent, the order of moves matters as much as the moves themselves.
Liquidity runway and rescue financing
The first question is usually how long the company can operate on current cash. A weekly cash forecast over a short horizon is a common tool in practice because it shows when money runs short. If new financing is needed, lenders may require priority over existing debt, which existing lenders may resist. In Chapter 11, a debtor can seek court approval for financing that receives special priority or liens, which can make rescue capital available when it otherwise would not be. Gather cash forecasts, capitalization tables, debt documents, and investor agreements, since those define who must consent.
Where governance comes in
Boards making restructuring decisions should document the options considered, the advice received, and the reasoning, especially when insiders are providing financing. Conflicts of interest are common when existing investors fund a rescue, and independent directors or special committees may be appropriate. We review the capital structure and consent rights, then outline which paths are possible with and without a court process. We also consider tax effects of debt cancellation and changes in ownership. A plan that favors one group without a stated reason tends to attract litigation later. The goal is a plan that stakeholders can evaluate on a fair record.
