Once a company or asset has been identified as being in a special situation, the next question is always the same: what should be done?

Unfortunately, there is no single answer. Every special situation has its own unique characteristics, depending on structural complexity, the bargaining position of the parties involved, market conditions, and the ultimate objective of the business owner. In general, however, there are several resolution paths that are most commonly used, each with its own logic and consequences.

1. Three Main Paths and a Combined Approach

a. Restructuring

Restructuring is an effort to reorganize the business, financial, or operational structure without necessarily giving up ownership. This may take the form of:

• Debt restructuring, renegotiating tenor, interest rates, or payment schemes with creditors.
• Organizational restructuring, merging entities within the same group to simplify the structure and reduce compliance costs.
• Operational restructuring, cost efficiency, closure of unproductive business lines, or changes to the business model.

This path is usually chosen when the business fundamentals remain strong, but the structure or financial burden is no longer aligned with current market conditions.

b. Divestment

Divestment is the disposal of ownership in an asset or entity, either partially or entirely. It becomes an option when:

• The asset is no longer aligned with the parent company’s strategic direction (non-core business).
• A third party is willing to pay an acceptable price, even for an asset under pressure.
• Maintaining ownership places a burden on resources that could otherwise be allocated to the core business.

A divestment process in a special situation is usually more complex than a standard M&A transaction, often involving more rigorous due diligence by potential buyers, given the distressed condition of the asset, and frequently requiring consent from creditors or other stakeholders.

c. Liquidation

When an entity no longer has operational value and no party is interested in taking it over, liquidation is often the most rational option. The objective is not to “save” the business, but to:

• Settle obligations in an orderly and structured manner.
• Distribute any remaining assets to shareholders in accordance with their rights, after all obligations have been settled.
• Stop the continued accumulation of compliance costs and legal risks associated with a dormant entity.

Liquidation is often misunderstood as a sign of “failure.” In many cases, the opposite is true, a planned liquidation is a form of healthy corporate discipline. This applies mainly to solvent entities; where assets are insufficient to cover all obligations, the process generally falls under insolvency procedures, such as bankruptcy, which follow different rules and creditor priorities.

d. Phased Combination

In situations involving multiple entities within one group, the selected solution is often not a single path, but a combination of the three paths above, for example, several entities may be merged to simplify the structure, while other entities that are truly unproductive may be liquidated in parallel. This phased approach requires careful coordination, because a decision involving one entity can affect the options available to the others.

2. Factors That Determine the Choice of Path

There is no fixed formula for determining which path is most appropriate, but several considerations are generally relevant:

• Creditor position and existing contracts, the leverage held by creditors, and whether loan, shareholder, or other agreements contain clauses that limit certain options, such as requirements for creditor consent before dissolution, asset transfers, or changes of control.
• Complexity of ownership structure, the more layers of ownership and related parties involved, the greater the need for coordination.
• Time horizon, whether there is a specific deadline that drives the need for speed, or whether there is room for a more careful process.
• Tax and legal exposure, each resolution path carries different tax and legal implications, and this often becomes a more decisive factor than initially realized.
• Stakeholder interests, the positions of employees, regulators, minority shareholders, and other affected parties, which can shape what is practically achievable.

3. Closing

Choosing the right resolution path requires a comprehensive understanding, not only from a financial perspective, but also from legal, tax, and stakeholder dynamics perspectives. Selecting the wrong path at the outset can result in a process that becomes longer and more expensive later on.

Contributor: Putut Sulistiyo