Reconstruction of a company is a process of reorganizing a companys legal, operational, ownership, and other structures by revaluing assets and reassessing liabilities. It involves winding up an existing company and transferring its assets and liabilities to a new company formed for the purpose of taking over the business and undertaking of the existing company. Shareholders in the existing company become shareholders in the new company, and the business undertaking and shareholders of the new company are substantially the same as those of the old company). Reconstruction is required when a company is incurring losses for many years, and the statement of account does not reflect the true and fair position of the business, as a higher net worth is depicted than that of the real one.

The objectives of reconstruction include resolving the problem of over-capitalization/huge accumulated losses/overvaluation of assets, making the capital structure of a company simple, generating surplus for writing off accumulated losses and writing down overstated assets, raising fresh capital by issuing new shares, changing the memorandum of association of the company, and generating cash for working capital needs, replacement of assets, to add.

When a company enters into reconstruction, it is carried out to avoid bankruptcy when a company is unable to fulfill its financial obligations, i.e., pay its suppliers, salaries, taxes, etc. . The companys board of directors applies for reconstruction to the district court, and it is a relatively complex process that must also take place quickly. Companies in this situation need to contact a law firm specializing in reconstruction to get help with this and set up a preliminary plan with a budget. If the company cannot pay its debts and is denied reconstruction, the business will be declared bankrupt.

Reconstruction is the rejuvenation of a struggling business, and it requires significant changes to the company, including operations, management, and finances. It aims to restore the companys competitiveness. There are many types of reconstruction of the company, ranging from slight tweaks to complete overhauls. To achieve reconstruction, companies use common strategies, including cost reduction, improved efficiency, and reorganization. Other strategies include renegotiating contracts and finding new sources of income.