Structured Settlements : New scheme
Structured settlement refers to a new scheme launched by various banks to put a debt-ridden organization in the right track of revenue generation.
If a particular company has borrowed heavily from a bank, but has reached a position where it cannot make prompt repayments, it can seek the bank's help for a structured settlement. Under this scheme, the bank will study the entire functions and the assets of the company, which has taken the loan. It will prepare a detailed list of the company's assets. Subsequently, the bank will write off the loan in exchange for the fixed asset of the company such as land or vacant building. Under this scheme, the bank will not take over other fixed asset such as machinery or the production plant since it will hit the survival of the company. However, to take over the fixed assets, they should be provided as collateral to the bank by the company at the time of securing the funding. The company that has defaulted payments cannot pledge the land or the fixed assets elsewhere to repay the original loan.
Under the structured settlement, once the bank signs an agreement to revitalize the company, it will take over all the fixed idle assets of the company and write off the loan. It will raise additional resources by disposing off the unused property of the company. Subsequently, the resources will be deployed in the company to resume activities. One of the bank's representatives will be on the board or management of the company to monitor the structured settlement. Once the bank has recovered all its dues, it will exit from the company's day to day activities. In fact, the bank will help run the company till its revenues are cash positive. In the process, the company may also have to pay a certain fee to the bank.
There is a second option under the structured settlement scheme. The bank will take over the control of the company. It will also sell some of the properties of the company to partly recover the dues pending and flush the remaining funds into the company's business. If it is a product company selling manufactured goods, the employment of working capital will help grow the business. The bank will manage the company for a period of time as decided till it recovers its entire dues. Subsequently, the bank will exit from the business once the structured settlement is approved by the board. In the meantime, the promoters or proprietors of the company too will have to sign an agreement with the bank enabling the structured settlement. The bank will be in a position to dictate terms, but it has to take measures to ensure that there is no labor loss or unrest among the companies when the process is on.
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