Successful Metamorphosis or Not? <br/>—A Case Study of the Bankruptcy Reorganization of Northeast Special Steel

Abstract

On October 10, 2016, Fushun Special Steel issued a notice announcing that its controlling shareholder, Northeast Special Steel, entered the bankruptcy reorganization process due to nine consecutive defaults and nearly 5.8 billion RMB in liabilities. Bankruptcy reorganization can help solve the debt problems faced by such inefficient zombie firms, and restore their ability of sustainable operation and profitability. However, since reorganization effects only a change in debt structure and of stakeholder composition, whether the newborn entity has the ability to manage and operate the firm is critical. Therefore, the reorganization can only solve the institutional problems but not the managerial problems ; that is, institutional reorganization cannot be automatically converted into behavioral change. Thus, when analyzing the implementation process of reorganization from the perspective of firm management, several questions arise: who should take control in the process of reorganization? How should the organizational structure of the restructuring firm be reorganized? How to reconfigure the internal human resources of the firm? Whether the former industry leader can properly handle these problems in the reorganization process is worthy of further discussion.