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CORPORATE FINANCE



REHABILITATION FORSICK UNITS

PRESENTED BY

ANGSHUMAN CHOUDHURY



INTRODUCTION

Sick industries have far-reaching consequences on the economy of

the nation. The following are the bad effects of IndustrialSickness--

1.There is under utilization of capital assets.

2.The entrepreneurship level declines.. Increase in industrialsickness discourages entrepreneurship.

3.The investor confidence reaches a lower ebb. Thus, capital is notput to productive use.

4.Industrial sickness results in large scale unemployment andindustrial unrest.

5.Profitability of banks and financial institutions gets affected since

they don’t get back their funds invested in projects that have gonesick..



DEFINITION OF SICKNESS

The sick industrial companies (Special

provisions) Act, 1985, as amended in 1993

defines –

Sick Industrial Company as an

industrial company (being a company

registered for not less than five years) which

has at the end of any financial year accumulated losses equal to or exceeding its

entire net worth.



BOARD OF INDUSTRIAL AND

FINANCIAL RECONSTRUCTION (BIFR)

(BIFR) was established by the Central Government, under section

3 of the Sick Industrial Companies (Special provisions) Act, 1985

and it became fully operational in May, 1987.

Role of BIFR as envisaged in the SICA (Sick Industrial

Companies Act) is:

(a) Securing the timely detection of sick and potentially

sick companies.

(b) Speedy determination by a group of experts of thevarious measures to be taken in respect of the sick

company.

(c) Expeditious enforcement of such measures.



Reporting to the BIFR

To report the sickness to the BIFR within 60 days of finalisation of

audited accounts, for the financial year at the end of which the

company has become sick.

The BIFR prescribes a different format for the report to besubmitted by any interested parties regarding the sickness.For

eg’s – Banks , other financial institutions.

When a company has been financed by a consortium of banks,itis the Lead Bank that should report to BIFR about the sickness

under advice to other participating banks in the consortium.



Enquiry by the BIFRWhen a case is referred to the BIFR, it is verified by the

Registrar of the BIFR as to whether the company is SICK.

BIFR accepts the case and notifies a date for hearing the case.

Co-ordination of connected agencies is achieved by BIFR.

Invites the informant Sick Company to come to negotiation with

the concerned financial institutions.

After the Survey and hearing, the court summons the rehab to

an operating agency.



Revival PackageOnce a company has been found sick, the BIFR may grant time

to the sick company to enable it to make its networth positive and

bring the company out of sickness, without any external

financial assistance.

The BIFR will direct the operating agency to prepare a suitablerevival package for the restoration of the health of the company.

Revival Package includes- additional financial assistance,

postponement of recovery of loan already lent by banks, change

in management, amalgamation, sale of redundant assets, lease

of assets or any other suitable measure.



Need for revival/rehabilitation

programme A sick company has already swallowed huge scarce resources. In

order to utilize the assets and infrastructure already created for

the project, the project is to be revived from sickness.

Revival of a sick unit may be necessitated, because –

1. The project may be in a sector that is vital to the economy.

2. Many ancillary units may be dependent on the unit that

has gone sick. Unless the sick unit is revived, it will have a chaineffect of all such dependent ancillary units becoming sick.

3. Banks and financial institutions would have locked up their

money in sick ventures.



Causes of Sickness

Internal Causes-

1. Project formulation.2. Project implementation.

3. Production.

4. Marketing.5. Finance.

6. General and personnel

administration



External Causes

1. Government’s plans and actions.

2. Failure of monsoon which affectsagriculture and allied industries.

3. Emergence of strong competitors etc



THANK YOU

ANY QUERIES ????

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