Abstract for REVIVAL AND RESTRUCTURING OF SICK COMPANIES UNDER COMPANIES ACT
In the modern times, due to increase in market issues, there are numerous companies facing the issues like losses or on verge of being dysfunctional or in the process of winding up. Now, winding up is not the proper solution as not only a company’s financial condition affects the shareholder but also to the society. so in this study, we try to figure out that how can the companies be financially sound again and what is the government and judicial role in it?
In this paper, we tried to make a proper analysis of the sick company and the determination of such companies as well as tried to figure out the measures to make the sick company financially stable again. And provision given under statutes like companies Act, 2013 is been discussed referring many articles. And also the purpose of the study was to present a systematic review of the available methods concerning the revival of the sick companies and government role and institutions have been discussed here.
It is hoped that the that the study will inform the shareholders as well as the society at large about the management practices done for the betterment of the sick companies.
Introduction
In order to develop, India requires the strength of Industries as are the necessity of any developing or developed nation. If industries or corporations losing their assets or money it becomes unaffordable for any nation to have such a situation. Even if an entity is private one society suffers the loss.
Whenever company suffers huge losses and there are minimum chances to recover the loans, it chooses to the disintegration of its total assets i.e. “winding up”. An organization winds up noticeably bankrupt with its advantages being lacking to meet its liabilities and the organization would be free from its business or contract advance liabilities as the bankruptcy of a man takes away his entitlement to contract and since a company is a legal person and it will have such benefits as of a natural person. So, in such conditions, an organization is as much as a natural individual.
In any case, with increasing high and high interest in settled resources and with such huge numbers of employees on the very edge of losing bread and butter for survival, the financial framework and social framework will be suffered, So keeping so many necessary objectives in mind we can take a mid-path rather than winding up the whole company which would gain distress in country as well as society.
Provisions which including chapter XIX of companies act which is dealing with revival and rehabilitation of sick companies. In order to prevent a company from winding up by consuming all the assets of the company (that can be used again), and maximizing the labors of employees, using the funds and capital that is still with the company to revive the company as quickly as possible. Since it is a work that includes public policy, the industries could be prevented from being the prey to such situations, which forced the government of India to make such provisions which are to be discussed below.
What is a sick company and how to identify it
Here if we start defining the sick company, then for defining a unit as sick it has to be to registered for seven years and also should have incurred losses continuously for two years including the current year and its net worth must have been completely exhausted by the accumulated losses or debts as sick company is defined under Sick Industrial Companies (Special Provisions) Act 1985 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.”
Power is assigned to the Government of India or RBI or a Government of respective states or public financial institution or a scheduled bank to have their criteria to check the company whether it’s a sick company or not under section 235(5). But in the case of others creditors, the determination of a sick company will be decided by the Tribunal itself.
But in the provisions, there is a minor difference as the following statues state that only for the industrial companies the act i.e. The sick industries companies Act,1985 whereas companies Act,2013 deals and covers the revival and rehabilitation of all companies do not respect to their sectors which they belong.
For determination of sick company the required statute is section 253 of the Companies Act. Section 253(1) of the Act says that gives any secured lender of the organization constituting or having 50% or a greater amount of the required sum as of obligation, even with inside a time of thirty days of the administration of the notice of the request the organization has neglected to pay the obligation.
They even neglected to secure appropriate sensible fulfillment of the banks. Along these lines, in the event that it is watched then the secured bank should record an application with the council as the endorsed organize. Presently as Section 253(7) has offered energy to the Tribunal to decide if an organization is debilitated or not inside a time of sixty days of receipts of the application under section 253(1).
If at all tends to happen that the process of winding up of the company is going on or selling off any assets and property is about to take place then Section 253(2) of the statues ensures the power to the applicant creditor to move for a stay of such proceeding. Tribunal can grant a stay of one hundred and twenty days.
After that the date of assurance of the organization as a wiped out organization any secured lease or the organization may make an application Within sixty days to the Tribunal for the assurance of the measures that might be embraced concerning the recovery and restoration of such organization as given under Section 254(1) organizations Act,2013. With the application and the examined monetary proclamations of the organization identifying with the quick going before money a related year and a draft plan for restoration and recovery of the organization.
Measures for revival of sick companies and information related to it
As per the draft rules, the application needs to be supported by the demand notice Proof of service of the demand notice and any acknowledgment, reply or other correspondence received from the debtor company. Updated accounts showing the amount receivables, audited financial statements of last five financial years and other documents necessary
The Tribunal subsequent to considering the for default in an installment of duty and position of obligations owed by the account holder organization to its lenders, both secured and unsecured may be arranged to proclaim the debilitated organization. Nonetheless, before making such a request a sensible chance of being heard is given to the organization.
Once an application or reference has been made under Section 253, the following procedure is followed by the Tribunal.
Within seven days of accepting the application, the court needs to settle a date for hearing not past than ninety days and name a between time chairman as recommended Under Section 256 of Companies Act. The tribunal directs the gathering of the loan bosses of the organization which is to be held within 45 days of his arrangement. The reports outfitted with the application the draft conspire and some other material including is being considered by the interim administrator and after analyzing all of the above-mentioned things they form an opinion regarding the fact that of possibility for revival and rehabilitating the sick company. Within 60 days the report has to be submitted to the Tribunal.
The order may be passed as per the discretion of the tribunal the interim administrator to preside over the management of the company if no draft scheme is filed on the behalf of the company. The Tribunal has also power for issuance directions to the interim administrator for the protection and preservation of the assets of the sick company and runs the company with proper administration and management. And as the tribunal passed an order regarding the interim administration to take steps for management of the company, so it is now the obligation of the directors and the management of the company to extend all possibly required assistance and cooperation for maintaining the affairs of the company.
The interim administrator has all powers to constitute a committee comprising of creditors where they are not supposedly not more than seven members representing each class of creditor. The interim administrator can give directions further to any promoter, director or a managerial personnel who holds a key position in the company and order him to attend any meeting of the committee of creditors and to Furnish necessary information as given under Section 257 companies Act.
Order for winding up of proceeding
If the Tribunal is satisfied after considering and checking of the report of the interim administrator and comes to the conclusion that the creditors representing three-fourths in value of the amount are still as liability for the present company and by voting it is concluded that it is not all possible to revive and rehabilitate such company then as according to Section 258(a) The Tribunal may by order initiate the winding up proceedings
Appointment of company Administration
Under Section 258(b) of the company’s Act, an interim administrator appointed may be appointed as the company administrator. Actually it is the discretion of the tribunal in order to appoint a company administrator if he is sure regarding the fact that the creditors having nearly 75% in value of the amount defaulted by the sick company so they can do the measures by voting and then resolve that the company may be revived and rehabilitated by taking appropriate measures. A scheme for revival and rehabilitation is to be prepared by the administration.
The appointment meant of the interim administrator or the company administrator shall be from a public sector bank or any of the agencies authorized by the Central Government of India which includes experts like company secretaries, chartered accountants, and such other professionals as prescribed by the Central Government. The terms and conditions of the appointment of interim and company administrators should be fixed by the tribunal itself.
And any confusing and disputing events would be dealt by the tribunal itself.
Now the administrator of the company will be preparing the A scheme for revival and rehabilitation shall be as per the provision of section 261 that it shall include measures include like
The sick company’s financial reconstruction for the restructuring and institutions like NCLT, sick company‘s management in order to decrease the losses and attain the profits for the betterment of the company, amalgamating or merging of the sick company with other company or vice-versa another way is if any solvent company or profit bearing company takes up the sick company and such other preventive measure as may be necessary.
section 262 as given scheme shall be sanctioned as per of the Act for which parties will be binding and tribunal will be taking necessary steps like modifications or amalgamations or any other such steps which is suitable .in order to have proper suitable check over the sick companies the governing bodies as well as tribunal who play important role is mentioned below.
The restructuring bodies and their functionality
The National Company Law Tribunal (NCLT) is a body made by the government which is quasi-judicial in nature i.e. the tribunal dealing cases related to sick companies in India. The NCLT was established under the under companies act 2013 NCLT was formed it was constituted on 1 June 2016. Prior to the NCLT it was the body named Board for Industrial and Financial Reconstruction (BIFR) was responsible who was dealing with this matter like determining sick companies or shutting it down but from December 2016 it has ceased to be operated and in that place, NCLT has started working.
Now if we wanted to know about NCLT in short, Government of India dissolved BIFR due to incompetency and all proceedings which were filed was transferred to NCLT and National Company Law Appellate Tribunal (NCLAT) according to the Insolvency and Bankruptcy Code provisions.
Furthermore, information on this bodies is that, there are 11 benches are constituted for NCLT in all over India, Its re-appraising specialist is the NCLAT( National Company Law Appellate Tribunal). The appellate specialist of NCLAT is Supreme Court. The NCLT has the power under the Companies Act to mediate procedures which are pending before the BIFR and other to cases of mismanagement and blunder of an organization, ending up of organizations and every single other power endorsed under the Companies Act and so forth
CONCLUSION
In order to proper financial situations under the statute, it is under section 269 of the Act a fund will be constituted in order to take measure for financial stability the fund will be called as the Rehabilitation and Insolvency Fund which will be used for revival, rehabilitation and also be used for liquidity of the sick companies. It is also good that the power has been vested upon the tribunal in order to provide proper and strong measures for the revival and rehabilitation of the sick companies.
the revival and rehabilitation of the sick companies are very much necessary and should be given an eye to it as the winding of a company is not a proper solution always since a company has been establishing after so much rushes and difficulties like money, management and NOC ’s. And as earlier said that winding up not only affects the shareholders but also society as well so the winding up should keep as last unwanted step and revival and rehabilitation of companies should be given priority and the government should make more strong steps for it.
Since it has been demolished by the government in 2016 since it failed to meet objectives for which it was established by the Government and in that place NCLT and NCLAT has been established in order to check and give measures to such companies and ensure that the shareholders, creditors should get benefited and get returns because a company is an important part of society. Since NCLT and NCLAT has been established recently but it has shown a great step and results are good compared to IBRF so we hope the NCLT and NCLAT will come up with more measures in order to check the loopholes for the Act and clear it and provide proper justice to the society and will secure to fulfill its objectives.
REFERENCES
Statutes
- Chapter – XIX, Indian companies Act,2013
Website
- Article-revival and rehabilitation of sick company under new companies Act, 2013 Abhay N link-https://indiamicrofinance.com/revival-and-rehabilitation-of-companies.html date of access-02.02.2018
- Article-What is the procedure for the revival of the sick company under Companies Author- sonal Srivastava link-https://blog.ipleaders.in/procedure-revival-sick-company-companies-act/ date of access-02.02.2018
- Link http://www.indianindependentdirectors.org/downloads/draft-rules/chapter-XIX.pdf date of access-02.02.2018
- article- revival and rehabilitation of the sick industrial company. authored by –Ashis Bang link https://astrealegal.com/revival-and-rehabilitation-of-sick-industrial-companies/ date of access-02.02.2018
- Article- revival, and rehabilitation of sick company authored by- Aishwarya M. Gahrana link- https://aishmghrana.me/2014/02/07/revival-and-rehabilitation-of-sick-companies/ date of access-02.02.2018
- Article-Revival and Rehabilitation – Legislative Changes & Challenges – by Satwinder Singh link https://www.icsi.edu/portals/70/328092013.pdf date of access- 02.02.2018
By Anshuman Rath
Visit our Instagram page @lawyergyan at this link.