Corporate rescue - raising new capital

How do you rescue a company in financial trouble?

One method is of course to raise new capital. This of course will not be easy. One change in the law that makes the process slightly easier is the removal of the concept of par value. Formerly, all shares had to have a par value which was the minimum price at which a company could issue its shares. In normal times, this was not too much of a restriction.

However, in bad times, it was unlikely that a new investor would be willing to pay par value for the shares. For example, if the existing shareholders paid $1 for each $1 share of the company's, with the company in desperate straits, a new investor would demand that new shares be issued to him at a much lower price, especially since it would not be clear how long the company would survive. The par value rules would prevent this new issue without court approval.

Now, without the rules relating to par value, companies will have more flexibility in raising capital.