Corporate Restructuring: Legal Considerations and Best Practices

Corporate restructuring represents one of the most complex, yet strategic exercises companies undertake to enhance value, improve operational efficiency, or respond to market dynamics. Whether driven by growth ambitions, financial distress, regulatory changes, or succession planning, restructuring involves intricate legal, economic, and operational considerations that demand careful navigation.

Understanding Corporate Restructuring

Corporate restructuring encompasses a range of transactions, including mergers, amalgamations, demergers, slump sales, share transfers, reductions of capital, and buybacks. Each form serves distinct strategic objectives and triggers different legal, tax, and regulatory implications.

Mergers and amalgamations consolidate entities, achieving economies of scale and market synergies. Demergers separate business verticals, enabling focused management and unlocking value from non-core assets. Restructuring motivations vary from growth-oriented expansion to defensive responses to financial distress, with tax optimization and succession planning driving many transactions.

Regulatory Framework: 2024-2025 Transformations

Indian corporate restructuring operates within a multi-layered regulatory framework that has undergone dramatic evolution in 2024-2025. The Companies Act, 2013, provides the primary legal architecture through Sections 230 to 240, which detail procedures for schemes of arrangement requiring court approvals and stakeholder consents.

Revolutionary Fast-Track Merger Expansion

The most significant development is the September 2024 and 2025 amendments to the Companies (Compromises, Arrangements and Amalgamations) Rules. This represents the most substantial liberalization since the framework’s inception. Debt thresholds for unlisted companies have quadrupled to INR 200 crore, enabling mid-sized companies to bypass time-consuming NCLT procedures entirely.

Non-wholly owned subsidiaries can now access fast-track procedures, eliminating rigid requirements that previously prevented efficient group restructuring when even minimal minority stakes existed. Fellow subsidiaries of the same holding company qualify for fast-track mergers, facilitating intra-group consolidations without tribunal intervention.

Most significantly for cross-border transactions, foreign holding companies can now merge with their Indian wholly owned subsidiaries through the fast-track route. This “reverse flipping” provision streamlines the process for overseas companies seeking to relocate headquarters to India, aligning with increasing trends of start-ups moving from Singapore, Delaware, or the Cayman Islands. The Finance Minister’s February 2025 Union Budget formalized governmental commitment to these reforms.

Competition Law Modernization

The Competition Commission of India introduced substantial reforms through the 2024 regulations, fundamentally updating thresholds for the digital economy. The deal value threshold now mandates CCI filing when the transaction value exceeds INR 2,000 crore, and the target demonstrates substantial Indian operations.

Digital market-specific criteria determine substantial operations, including having at least 10 percent of global active users in India, Indian ownership of intellectual property or digital assets, and significant local revenue or research activity. These provisions address the unique characteristics of technology companies where traditional asset and turnover tests prove inadequate.

Timeline improvements reduce Phase I review from 30 working days to 30 calendar days and cut the Phase II maximum from 210 to 150 days, significantly accelerating regulatory clearances. However, the expanded definition of control now encompasses negative control through veto rights over strategic decisions, meaning minority investors and private equity funds with governance rights may trigger merger filings even without majority ownership.

Tax Regime Changes

Significant tax changes affect restructuring economics. From April 1, 2025, loss carry-forward following mergers is limited to the remaining portion of the original eight-year period calculated from when losses were first incurred. Previously, the clock reset post-merger, effectively extending tax benefits. This curbs indefinite tax arbitrage strategies in which companies acquire loss-making entities primarily to offset taxable profits.

The controversial Section 56(2)(viib) of the Income Tax Act, which taxed share premiums in start-ups and triggered frequent valuation disputes, has been removed. This elimination significantly improves investor confidence and facilitates smoother exits and acquisitions in the start-up ecosystem. Delhi High Court jurisprudence clarified that stamp duty does not apply to intra-group mergers between parent and subsidiary companies, creating a more predictable regulatory environment.

The NCLT Congestion Crisis

Despite progressive reforms expanding fast-track options, the National Company Law Tribunal continues facing severe capacity constraints. As of March 2025, over 15,000 cases remained pending before NCLT benches nationwide. Companies typically wait 9 to 12 months or longer from filing a scheme of arrangement to obtaining NCLT approval.

High-profile cases, such as Vedanta’s complex demerger, experienced repeated postponements throughout 2025, with hearings rescheduled multiple times due to regulatory queries and bench reconstitutions. The congestion stems from NCLT’s dual role, handling both corporate restructuring and time-bound insolvency cases under the Insolvency and Bankruptcy Code. Insolvency proceedings, which must be concluded within 330 days, dominate tribunal schedules due to their urgency. Merger and demerger applications, which have no statutory deadlines, consequently, take lower priority.

This backlog imposes substantial costs on businesses, as merger synergies are deferred, and uncertainty affects employees and investors. Policy recommendations emerging in 2025 include establishing a dedicated Corporate Restructuring Authority under the Ministry of Corporate Affairs to handle routine restructurings separately from contentious insolvency cases.

Due Diligence and Stakeholder Management

Comprehensive legal due diligence remains foundational to successful restructuring. This investigative process examines legal standing, contractual commitments, regulatory compliance, litigation exposure, intellectual property rights, and contingent obligations. Hidden liabilities, including undisclosed litigations, tax assessments, or employee disputes, can derail transactions or impose unexpected costs.

Material contracts require scrutiny for change-of-control clauses and assignment restrictions. Obtaining third-party consents from lenders, landlords, customers, and suppliers becomes essential. Technology-dependent businesses must confirm intellectual property ownership and licensing arrangements.

Successful restructuring requires balancing diverse stakeholder interests. Shareholders expect value maximization, creditors prioritize debt security, and employees seek employment continuity. Transparent communication through regular updates, town halls, and investor presentations builds stakeholder confidence. Minority shareholder protection receives heightened judicial emphasis, with courts scrutinizing share exchange ratios and valuation methodologies.

The 2024 period witnessed increasing shareholder activism, with minority shareholders filing class action proceedings alleging financial mismanagement. Proxy advisory firms regulated by SEBI have emerged as influential voices, providing voting recommendations that compel restructuring planners to pay heightened attention to fairness opinions and transparent communication.

Post-Restructuring Integration

Restructuring doesn’t conclude with legal completion. Post-transaction integration determines whether anticipated benefits materialize. Integration planning should address organizational structure, system consolidation, policy harmonization, and cultural alignment. Legal integration includes consolidating registrations, transferring licenses, and novating contracts. Cultural integration requires conscious effort to meld different organizational cultures and leadership styles.

Conclusion

The 2024-2025 period has witnessed transformative regulatory reforms that substantially ease restructuring for qualifying transactions. The expanded fast-track framework, streamlined competition approvals, and improved tax certainty demonstrate governmental commitment to ease of doing business. Companies benefit from dramatically reduced timelines for eligible transactions, with fast-track mergers bypassing lengthy NCLT procedures entirely.

However, challenges persist. NCLT capacity constraints continue to impose delays on traditional schemes requiring judicial approval. Cross-border transactions demand coordination across multiple regulatory authorities, including RBI approvals. The 90 percent approval threshold for fast-track mergers involving listed transferee companies remains challenging to achieve.

Best practices include early engagement of multidisciplinary advisors, thorough due diligence identifying risks and opportunities, clear articulation of strategic rationale, proactive stakeholder management, robust documentation, and disciplined post-transaction integration. Businesses viewing restructuring as purely legal or financial exercises risk failure. Successful restructuring integrates legal compliance, economic optimization, operational efficiency, and human capital management into cohesive strategies aligned with business objectives. In India’s dynamic business environment, characterized by rapid regulatory evolution and digital transformation, this holistic approach distinguishes transformative restructuring from mere legal formalities.