What main difference exists between restructuring and liquidation?

The primary distinction between restructuring and liquidation lies in their objectives and processes. Restructuring is aimed at restoring the financial health of a company, which may include negotiating with creditors, reorganizing operations, or changing business strategies to stabilize and potentially return to profitability. This approach emphasizes finding a way for the business to continue operating, preserving its value, and ensuring that stakeholders may still have a chance to recover some of their investments.

On the other hand, liquidation involves the process of selling off a company's assets to pay creditors, with the intention of shutting down the business entirely. This often follows a determination that the business cannot be saved and must be dismantled. In essence, liquidation marks the end of the company’s operations and a final attempt to settle debts through asset sales.

The correct answer highlights these foundational differences: restructuring seeks to rehabilitate and restore the company’s operational standing, while liquidation is fundamentally about the sale of assets and concluding the business. Understanding this distinction is crucial for anyone involved in corporate finance, as the implications for stakeholders can vary significantly based on which path a company ultimately takes.