Question

Asset sale is one form of corporate restructuring. Describe the asset sale process. Give one example of an asset sale as discussed in the course or in recent news articles.

Answer 1

Corporate Restructuring is generally required when the liabilities increases the total assets, and the company isn't able to service all of its liabilities.

So, the shareholders and management decides in consultation with the stakeholders to reduce liabilities by selling assets and writing off some liabilities. To do so, a person is appointed to conduct the market valuation of all the assets and liabilities.

The appointed person then has a meeting with the persons to whom the company owes, to write off some amount in a proper manner and selling non-core assets to pay off the remaining liabilities and restructure the residual liabilities and creating new business strategies.

The selling of assets can be carried out via piece-meal or as a whole. For restructing generally, a piecemeal method is followed after receiving bids for the individual assets. The money so collected by selling the assets is used to pay off the liabilities in a proper manner as decided and approved by the management and other stakeholders.

For eg, Recently corporate restructuring took in Hotel Leela Ventures Ltd., whereby the company sold its Individual Hotel assets to Brookfield association for the amount determined by agreement. For sale, due diligence is carried out by both the parties of the books of each other. Mostly, for sale of assets the individual valuation of the asset is carried out and the terms of the sale are so decided.