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Simple English definitions for legal terms
haircut reorganization
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A quick definition of haircut reorganization:
A haircut reorganization is when a company owes money to people and can't pay it all back. They make a plan to pay back some of the money, but not all of it. This is approved by a court. It's called a "haircut" because the people who are owed money don't get all of it back, just like when you get a haircut, some of your hair is cut off but not all of it.
A more thorough explanation:
Definition: A financial restructuring of a corporation that reduces the amount of debt owed to creditors. This can be done through a plan created by a trustee and approved by a court in bankruptcy cases. It can also involve a merger or recapitalization to improve tax treatment under the Internal Revenue Code.
Example: Company A owes $100 million to its creditors. Through a haircut reorganization, the company negotiates with its creditors to reduce the amount owed to $50 million. This allows the company to restructure its finances and avoid bankruptcy.
Explanation: The example illustrates how a haircut reorganization can help a struggling company reduce its debt burden and avoid bankruptcy. By negotiating with creditors to reduce the amount owed, the company can restructure its finances and improve its financial health.