Corporate debt restructuring (CDR) is a voluntary mechanism in India for restructuring debt obligations of viable companies facing financial difficulties. It aims to preserve economically valuable companies and minimize losses to creditors. The CDR process involves creditors coming together to restructure debt by delaying repayments, converting debt to equity, or reducing interest rates. It is implemented through a three-tier structure and helps revive sick companies by improving their liquidity and restoring balance between debt and equity.

1. By : CA SK Varshney

2. “The process involved in changing the
organisation of a business.”
 Redesigning one or more aspects
 Implemented due to certain factors:
To be more profitable, survive economic
conditions, address challenges &
increase shareholders value.

3.  To improve competitive position
 To rearrange the activities to be more profitable
 Cost reduction in shape of Interest
 Utilization of strategic assets
 Eliminate competitors
 To have an access to R & D
 Focus on core strengths
 Revive and rehabilitate a sick unit
 Constant supply of resources
 Tax benefits
 Improve corporate performance

5. Every company has two main sources of finance i.e.
debt and equity and a successful organization
always creates a perfect balance of debt and equity
in its capital structure. Sometimes the capital
structure may get off balance due to certain changes
which are beyond the control. This balance is thus
restored by financial restructuring.

6.  MISAPPROPRIATION OF FUNDS
 LACK OF OPTIMUM UTILISATION OF
RESOURCES
 SHIFT IN CONSUMER PREFERENCES
 INEFFIOCIENT MANAGEMENT
 EXTERNAL FACTORS
 DISSATISFIED WORKERS, STRIKES,LOCK
OUTS ETC

7. It is the desire of every company to have a fairly
capitalized situation i.e. neither over-capitalization nor
under –capitalization
The over capitalized company can be restructured by:
a)Buy back of shares
b)Redemption of preference shares
c)Reduction of funded debts
d)Re-organisation of equity capital
An under capitalization can be correctd By
a)Fresh issue of shares
b)Issue of bonus shares
c)Increasing par value of shares

9.  Corporate debt restructuring helps in restructuring the existing
debt obligations by delaying the repayment time or
converting the debt into equity shares or reducing the rate of
interest to be paid on these obligations.
 This process is voluntary and non regulatory.
 In simple words
Corporate Debt Restructuring (“CDR”) mechanism is a
voluntary non statutory mechanism under which financial
institutions and banks come together to restructure the debt of
companies facing financial difficulties due to internal or
external factors, in order to provide timely support to such
companies

10.  Debt restructuring is a process that allows a
private or public company, or a sovereign
entity facing cash flow problems
and financial distress to reduce and
renegotiate its delinquent debts in order to
improve or restore liquidity so that it can
continue its operations.

11.  Voluntary mechanism
 Non statutory process
 Allows public and private companies both
to restructure
 Reorganizes the debt obligations
 Helps in reviving the sick companies
 Helps in restoring the liquidity of the
companies stuck in debt trap.

12. The Objective of CDR mechanism as enunciated in
the scheme evolved by Reserve Bank of India, the
central bank of the Country are as under:-
 To ensure timely and transparent mechanism for
restructuring of corporate debt of viable entities
facing problems, for benefit of all concern
 To Aim at preserving viable corporate that are
affecting by certain internal and external factors.
 To minimize the loss to creditors and other
stakeholders through an orderly and coordinated
re-structuring program.

13.  Helps the business to control their finances
 Improves credibility
 Help the business by reducing interest cost.
 Safeguard creditor’s future
 Protects the company from bankruptcy
 Helps in reviving a sick unit
 Reduces NPA of various financial institutions
 Improves economic condition
 Alternatives to BIFR

14.  CDR was introduced in 2001 as a voluntary and
non statutory system and is based on the system
prevalent in London where the company is saved
from insolvency through Debtor Creditor
Agreement (DCA) and Inter Creditor
Agreement(ICA)
 RBI issued guidelines in 2012 to deal with both CDR
as well as non-CDR

15.  CDR is implemented through three tier
structure :
1. CDR Standing Forum and its Core Group
2. CDR Empowered Group
3. CDR Cell

16.  This is the topmost layer of the CDR
system and helps in smooth functioning
of the Self Empowered Group.
 There is also a CORE GROUP which helps
in taking decisions relating to policy.
 This core group is responsible for laying
down guidelines and monitoring the
process of CDR .

17.  The first layer deals with general
guidelines, the next layer consists of
specific cases as per guidelines of
STANDING FORUM
 The company will have to apply for the
CDR to CDR Cell which will examine the
request filed by the company
 The cell will then check the feasibility of
request on the basis of Standing Forum
guidelines

18.  The CDR Cell helps CDR Standing Forum
and Empowered Groups in performing
functions and work out a plan within 30
days with the help of other creditors and
experts.
 According to the proposal final decision
is taken by Empowered Group.

19. 1. Increasing the term of loans
2. Converting the debt into equity
3. Reducing share capital or changing its composition
4. Extension of repayment period of the existing debt and rescheduling
5. Reduction of high interest on the loan
6. Re-phasing recovery programs
7. Reducing margins
8. Reassessing credit facilities such as working capital
9. Procuring extra money
10. Conversion of the unpaid interest
11. Conversion of the compound interest into simple interest

20. 7. Reducing margins
8. Reassessing credit facilities such as
working capital
9. Procuring extra money
10. Conversion of the unpaid interest
11. Conversion of the compound interest
into simple interest

21.  The CDR progress reports indicate 285 live
cases dealing with the debt of Rs. 286405
crores
 Infrastructure ,Iron and Steel , textiles etc.
are some of the main sectors which are
resorting to CDR mechanism
 Therefore CDR in India has shown higher
trend and its demand has been increasing
since its inception
 By 2018 after introducing Bankruptcy Act
RBI wind up the CDR.