ACCAspace

Provided by
ACCA Research Institute

ACCA P4
Advanced Financial Management (AFM)
高级财务管理
ACCA Lecturer: Lily Wang

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com

 P4 Chapter 11 Content

1 Corporate reconstruction

2 Devising a corporate reconstruction scheme

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 2

 1.Corporate reconstruction

 Corporate reconstruction of a failing company

• Companies in financial distress often undergo corporate
reconstructions to enable them to remain in business rather than go
into liquidation. Corporate reconstruction in a failing company often
involves raising some new capital and persuading creditors/lenders to
accept some alternative to the repayment of their debts. This will
ensure that the business continues in the short term
• Longer term, the management need to consider whether the
reconstruction will helpthe company develop a sustainable
competitive advantage, and provide opportunities for raising further
finance

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 3

 1.Corporate reconstruction

 Options open to failing companies

Option open to failing companies not wishing to go into liquidation, and
which allow space for the development of recovery plans, usually include:
• a Company Voluntary Arrangement (CVA)

• an administration order

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 4

 1.Corporate reconstruction

 Corporate reconstruction of a sovent company

Corporate reconstructions can also be undertaken by successful
companies. The specific objectives of the reorganisation/ reconstruction
maybe one or more of the following:
• To reduce net of tax cost of borrowing
• To repay borrowing sooner or later
• To improve security of finance
• To make security in the company more attractive
• To improve the image of the company to third parities
• To tidy up the SOFP

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 5

 1.Corporate reconstruction

 Options for sovent company

There are four main types of reorganisation used by solvent companies,
depending on the individual situation.
• Conversion of debt to equity
• conversion of equity to debt
• conversion of equity from on form to another
• conversion of debt from one form to another

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 6

 1.Corporate reconstruction

 Options for sovent company

• Conversion of debt to equity

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 7

 1.Corporate reconstruction

 Options for sovent company

• Conversion of equity to debt

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 8

 1.Corporate reconstruction

 Options for sovent company

• Conversion of equity from on form to another

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 9

 1.Corporate reconstruction

 Options for sovent company

• Conversion of debt from one form to another

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 10

 2.Devising a corporate reconstruction scheme

 General principles in devising a scheme

In most cases the company is ailing:
• Losses have been incurred with the result that capital and long-term
liabilities are out of line with the current value of the company's assets
and their earning potential
• New capital is normally desperately required to regenerate the
business, but this will not be forthcoming without a restructuring of the
existing capital and liabilities

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 11

 2.Devising a corporate reconstruction scheme

 General principles in devising a scheme

The general procedure to follow would be:
• write off fictitious assets and the debit balance on profit or loss
account .Revalue assets to determine their current value to the
business
• determine whether the company can continue to trade without further
finance or, if further finance is required, determine the amount
required, in what for and from which persons it is obtainable(typically
exising shareholders and financial institutions)
• given the size of the write-off required and the amount of further
finance required, determine a reasonable manner in spreading the
write off ( the capital loss) between the various parties that have
financed the company (shareholders and creditors)

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 12

 2.Devising a corporate reconstruction scheme

 General principles in devising a scheme

The impact on stakeholders:
The interests of a number of different stakeolder groups must be taken
into account in a reconstruction. A reconstruction will only be successful
if it manages to balance the different objectives (risk and potential return)
of :
• ordinary shareholders
• preference shareholders
• creditors, including trade payables,bankers and debenture holders

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 13

 2.Devising a corporate reconstruction scheme

 Different stakeholder requirements

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 14

 2.Devising a corporate reconstruction scheme

 Different stakeholder requirements

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 15

 2.Devising a corporate reconstruction scheme

 Different stakeholder requirements

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 16

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 1

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 17

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 1

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 18

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 1

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 19

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 1

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 20

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 1

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 21

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 1

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 22

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 2

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 23

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 2

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 24

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 2

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 25

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 2

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 26

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 2

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 27

 2.Devising a corporate reconstruction scheme

 Wire Construction Case Study Part 2

ACCAspace 中国ACCA特许公认会计师教育平台 Copyright © ACCAspace.com 28

ACCAspace

Provided by
ACCA Research Institute