What is a Reorganization?

A reorganization involves the reordering of a firm's activities to more tightly focus on its core capabilities. All other activities are eliminated, spun off, or outsourced. The remaining operations may be reshuffled into a different organizational structure, with revised employee job descriptions. Accompanying these changes is a revamping of the firm's capital structure, which may include the restructuring of debt agreements or the conversion of debt into equity. Creditors may also be contacted to discuss delayed payment terms. Reorganizations are closely associated with a Chapter 11 bankruptcy filing, though they may also be initiated when management wants to focus on improved profitability. If a reorganization is associated with a Chapter 11 filing, then the holdings of current shareholders will likely be wiped out. Ultimately, the main point behind a reorganization is to return a struggling business to long-term financial viability. It is commonly associated with the replacement of some or all members of the management team.

A common outcome of a reorganization is a significant reduction in employee headcount.