Legal Definitions - haircut reorganization

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.