Revival and Rehabilitation of Sick Industrial Companies: A Guide to BIFR
Introduction
The Board for Industrial and Financial Reconstruction (BIFR), under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), plays a crucial role in the revival and rehabilitation of potentially viable sick industrial companies. It also provides for the liquidation of non-viable companies.
What is BIFR?
BIFR is a quasi-judicial body established to address the challenges faced by industrial companies that have become financially distressed. The body can take measures to either revive and rehabilitate such companies or recommend their liquidation.
BIFR acts in a remedial and ameliorative capacity, empowering it to make decisions aimed at the revival and rehabilitation of sick industrial companies. If a company is deemed to be in difficulty, it can approach BIFR for help.
Who Can Seek Relief Under BIFR?
- Applicability: The provisions of SICA apply to all industrial undertakings in India (except for shipping industries, small-scale industries, cooperative societies, and units owned by a trust).
- Criteria for Sick Status: A company must meet the following criteria to be considered “sick”:
- The company must be an industrial undertaking.
- It should have been in operation for at least five years.
- The company must have accumulated losses at the end of the financial year that are equal to or greater than its entire net worth.
Reliefs on Reference to BIFR
Upon referral to BIFR, certain legal proceedings against the company are stayed, including:
- Suits for recovery of money.
- Suits for enforcement of any security or guarantee.
- Execution against the company’s properties.
- Other similar proceedings.
Additionally:
- Creditors are prohibited from initiating legal actions without BIFR’s permission until the matter is resolved.
- Priority of claims remains unaffected during the moratorium.
Role of BIFR
- Inquiry and Determination: BIFR examines the reference from the company and determines whether the company is sick.
- Rehabilitation Scheme: If the company is found to be viable, BIFR may appoint an operating agency (e.g., banks or public financial institutions) to formulate a Draft Rehabilitation Scheme (DRS).
- Liquidation: If revival is not possible, BIFR may recommend the company for winding-up.
Scope of Services
Our services in relation to BIFR include:
- Filing Reference/Application: We assist in filing references/applications to BIFR on behalf of the company.
- Draft Rehabilitation Scheme (DRS): We assist in the preparation and consulting of the DRS for the company’s revival.
- Corporate Restructuring Advice: We provide guidance on corporate restructuring under the DRS.
- Modified DRS: We help in preparing a modified version of the DRS if necessary.
- Miscellaneous Applications: We file any miscellaneous applications with BIFR on behalf of the company.
This publication is provided for general information and does not constitute any legal opinion. This publication is protected by copyright. © Astrea Legal Associates LLP