Revival and Rehabilitation of Sick Industrial Companies

Revival and Rehabilitation of Sick Industrial Companies

What is Board Industrial and Financial Reconstruction?

Under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 [SICA], the reference made by the sick industrial company is decided by the Board for Industrial & Financial Reconstruction (BIFR) The Legislation is basically and predominantly remedial and ameliorative in so far as it empowers the quasi judicial body, Board for Industrial and Financial Reconstruction (hereinafter also referred to as BIFR) to make appropriate measures for revival and rehabilitation of potentially viable sick industrial companies and for liquidation of non-viable companies.

If a corporate debtor is in difficulty it is likely that he would approach the senior lenders for some rehabilitation, waiver of compound or penal interest, funding of the interest dues on a zero coupon rate or at concessional terms. It would prepare a scheme of arrangement or rehabilitation plan with the assistance of experts or an advisor after making reference to BIFR.

Whether a Company has become sick can be decided only after accounts are finalised and audited. After the accounts are finalised, Board of Directors of the sick industrial Company must make a reference to BIFR within 60 days after finalisation of accounts. If Board of Directors are of the opinion that the Company is a sick industrial company, Board of Director can make a reference even before finalisation of accounts. [section 15(1) of SICA].

Who can obtain relief under BIFR?
Applicability of and Coverage of SICA – The Act extends to whole of India. The Act applies to ‘Industrial Undertakings’ as defined in section 3(1)(f), which states that;
The ‘industrial undertaking means any industrial undertaking pertaining to industry listed in schedule to Industries (Development and Regulation) Act. This schedule covers practically all industries and hence, the Act in reality applies to all industries, except shipping industry. The Act applies to Government as well as private undertakings. However, the Act does not apply to cooperative societies and units owned by a trust. The SICA does not apply to small scale industries (SSI). SICA has overriding effect – Provisions of SICA have overriding effect over provisions contained in all other laws, memorandum and article of company and any other instrument, except provisions of Foreign Exchange Regulation Act (FERA) and Urban Land (Ceiling and Regulation) Act (ULC) [section 32(1) of SICA].

Criteria for Seek Industrial Company?
(a) It should be an industrial company
(b) It should be registered for at least five years – A company usually makes losses in initial years and hence, initial losses do not mean that the industrial company is sick.
(c) At the end of financial year, accumulated losses should be equal to or more than its entire net worth

What are the reliefs on reference to BIFR?
Under SICA creditors of a sick company are prevented from enforcing their remedies in a court of law subject to stay or moratorium in the following classes of proceedings
a. Suit for recovery of money
b. Suit for enforcement of any security
c. Suit for enforcement of any guarantee in respect of any loan or advance granted to the company
d. Execution against companies properties
e. Proceedings for distress against such properties
f. Similar other proceedings against such properties
2. No creditors of the Company can initiate any kind of legal proceedings against the Company or against the assets of the Company for recovery of its dues in case such Company is before BIFR/AAIFR under the provisions of SICA till pendency of such reference or till obtaining leave of BIFR/AAIFR to do so.
3. However the priority of claims does not get adversely affected

Role of BIFR?
On receipt of reference from the Company, BIFR will inquire and determine that whether applicant is sick industrial company or not and after such determination, it may appoint operating agency(e.g. panel of banks, public financial institutions) to come up with Draft Rehabilitation Scheme as prepared in consultation with the Sick Industrial Company for the purpose of revival and rehabilitation of such company or it may ask for winding up of Sick Industrial Company if its not possible to revive the company.

Scope of our Services?
1. Filling reference/ application for on behalf of the Company
2. Preparation, assisting and Consulting in Drafting of Rehabilitation Scheme(DRS)
3 .Advising measures in the terms of Corporate Restructuring under the DRS
4. Preparation of Modified Draft Rehabilitation Scheme
5. Filling Miscellaneous applications with BIFR

Contact :
Sagar Bedre
B.Com,LL.B,CS
Astrea Legal Associates LLP
Pune