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Group Members Roll Numbers
Krutika Likhite 2012090
The companies Act defines a “Sick Company” as one:
Which has accumulated losses in any financial year equal to 50 percent or more of its average net worth during four years immediately preceding the
financial year in question,
Which has failed to repay its debts within any three consecutive quarters on demand for repayment by its creditors
2. Overestimation of demand and wrong dividend policy. 3. production. . Wrong location of a unit. Poor implementation of projects which may be due to improper planning or managerial inefficiency.• Internal factors are those which arise within an organisation 1. 4. Mismanagement in various functional areas of a company like finance. marketing and personnel.
. 7.strikes. Poor labour-management relationship and associated low workers' morale and low productivity. Failure to modernise the productive apparatus. etc. Unwarranted expansion and diversion of resources such as personal extravagances. .5. acquisition of unproductive fixed assets. 6. Poor inventory management in respect of finished goods as well as inputs. 8.lockouts.etc.excessive overheads. change the product mix and other elements of marketing mix to suit the changing environment.
. 6. changes in technology.etc. Failure to achieve optimum capacity due to shortage of raw materials as a result of production set-backs in the supply industries.changes in the import conditions.etc. 3. 5. 2.External factors are those which take place outside an organisation 1. Credit squeeze. 4. Infrastructural problems like transport bottlenecks. etc. Energy crisis arising out of power cuts or shortage of coal or oil. International pressures or circumstances. poor agricultural output because of natural reasons. Situations like market recession.
• • • • • Delay or default in payment to suppliers Irregularity in bank A/C Delay or default in payment to banks & FI Non-submission of information to banks & FI Frequent requests to banks & FI for additional credit • Decline in capacity utilization • Poor maintenance of plant & machinery .
• • • • • • Low turnover of assets Accumulation of inventories Inability to take trade discount Excessive turnover of personnel Extension of accounting period Resort to ‘creative accounting’ which seeks to present a better financial picture than what it really is • Decline in the price of equity shares & debentures .
Amortization and Deferred Taxes . net working capital .& net worth of the company are positive • If not they should monitor the following cash flow related variables & improve overall position of the company • The cash flow represents the Earnings Before Depreciation. Cash position.• Ratio analysis – the analyst should see whether the three important parameter viz.
• • • • • • • EBDT to Total Assets EBDT to Total Liabilities EBDT to Net Sales EBDT to Net Worth EBDT to current Assets EBDT to Current Liabilities EBDT to Total capital .
Symptoms Accounting ratio to be used Low capacity utilisation Falling demand for the product in the market Inability to pay interest Borrowing for short term & investing in long term Large inventory accumulation in anticipation of rise in price Inefficient collection of debtors Liquidity crises Increase in average credit period to maintain sales in view of falling demand Actual hours / budgeted a hours or fixed assets turnover ratio Finished goods turnover ratio Interest coverage ratio Current ratio to fixed assets to long term loan ratio Inventory turnover ratio Debtor’s turnover ratio Current ratio . debtor’s turnover ratio .quick ratio Average collection period .
This also increases the non-performing assets (NPAs) of banks and financial institutions • • • It leads to loss of production and productivity in the economy It aggravates the problem of unemployment in the economy It vitiates the industrial atmosphere and leads to worker-management disputes.lock-outs.etc • It undermines the public confidence in the functioning of the organised sector in the country which in turn affects the overall investment climate of the economy.• It leads to loss of substantial revenue to the Government and enhances its public expenditure • It locks up necessary resources and funds in the sick unit.strikes. .
1985 (SICA). • It applies to industrial undertakings both in the public and private sectors. • The basic rationale of enacting SICA was to determine sickness in the industrial units • It also aimed at expediting the revival of potentially viable units . government took many steps to tackle this problem. region and industry. • The most important piece of legislation dealing with industrial sickness was the Sick Industrial Companies (Special Provisions) Act.• In the light of above growing sick units in terms of size.
• • • • • • • Settlement with creditors Provision of additional capital Divestment & disposal Reformulation of product market strategy Modernization of plant & machinery Reduction in manpower Strict control over costs .
• Streamlining of operations • Improvement in managerial systems – Environmental monitoring – Organizational structure – Responsibility accounting – Management information system – Budgetary control • Workers participation • Change of management .
• Companies that have difficulty in servicing their debt resort . Interest rate relief Deferment of past interest dues Wavier of penalties Reschedulement of the loan repayment Reduction in loan amount . • Debt restructuring primarily focused on the reducing the burden of debt. • Common elements in debt restructuring.
BIFR is a quasi judicial body . amalgamation of companies etc. • BIFR deals with issues like revival and rehabilitation on sick companies. 1987. under section 3 of the Sick Industrial Companies (Special provisions) Act.• Board of industrial and Financial Reconstruction (BIFR) was established by the Central Government. winding up of sick companies. institutional finance to sick companies. 1985 and it became fully operational in May.
accountancy.• The 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 the various measures to be taken in respect of the sick company (c) Expeditious enforcement of such measures • BIFR has a chairman and may have a maximum of 14 members. labour. economics etc. . It functions like a court and has constituted four benches. drawn from various fields including banking.
that is. remedial and other measures which need to be taken with respect to such companies. ameliorative. • Speedy determination by a body of experts of the preventive. Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) . • It provided for the constitution of two quasi-judicial bodies. • The expeditious enforcement of the measures so determined and for all matters connected therewith or incidental thereto.• Timely detection of sick and potentially sick companies.
by law.• The Board of Directors of a sick industrial company is required. for the financial year at the end of which the company has become sick . to report the sickness to the BIFR within 60 days of finalisation of audited accounts.
1985. .• When a case is referred to the BIFR. cooperation of various connected agencies is a must. • If so. the BIFR accepts the case and notifies a date for hearing the case. For rehabilitating a sick unit. it is verified by the Registrar of the BIFR as to whether the facts of the case falls within the provisions of the Sick Industrial (Special provisions) Act.
• The enquiry is to be completed within 60 days.• After the hearing. the BIFR will declare whether the company is sick or not . the BIFR itself may conduct a study or entrust the work to an ‘operating agency’ appointed by it to determine whether the company is in fact sick. On completion of the enquiry.
or if the BIFR decides that the company can not make its networth positive • Within a reasonable time. . the BIFR will direct the operating agency to prepare a suitable revival package for the restoration of the health of the company. without any external financial assistance • If it is found infeasible for company to make its networth positive with out any external financial assistance. the BIFR may grant time to the sick company to enable it to make its net worth positive and bring the company out of sickness.• Once a company has been found sick.
• The revival package should be submitted to the BIFR within a time limit of 90 days or such extended period as may be granted by the BIFR. postponement of recovery of loan already lent by banks and financial institutions. sale of redundant assets. change in management. lease of assets or any other suitable measure.• The operating agency prepares a suitable revival package. amalgamation. . The revival package may vary from case to case depending on the nature of the problem and may include additional financial assistance.
concessions. waiving of penal interest/compound interest charged. sacrifices etc.• When the revival package as finalized by the BIFR contains further financial assistance or reliefs. (for example. waiving of interest in part or full. waiver from sales tax etc.) the scheme will be circulated to the concerned agencies for their consent to be received within a period of 60 days . sanctioning of additional financial assistance for the purchase of certain balancing equipments.
• Nicco Corporation Limited(NCL) is the flagship company of the Nicco Group • For nearly over 6 decades. the US$ 67 million Nicco Group is a widely respected Indian industrial powerhouse . control. instrumentation & telecom cables & provides a spectrum of engineering services & executes turnkey projects • Established in 1942. NCL has been one of the pioneers in cable manufacturing industry • It produces a wide range of power.
• • • • • • • • • • Aircraft & Air Field Cables Fire Retardant Low Smoke Cables (FRLS) Automobile Cables Oil Rig Cables Copper Conductors Cables For Cranes Elevator Cables (lift Cables) Furnace & High Temperature Cables Marine Cable Power Cables .
NCL shall issue & allot shareholder of NBL share in transferor company in proportion of 2 share of face value of Rs.• NICCO BATTARIES LTD(NBL) amalgamated with NICCO Corporation LTD (NCL) with effect from 1 April 1994 as per amalgamation scheme • In amalgamation scheme entire undertaking of NBL shall be transferred to NCL & transferee company i.e.10 • The rehabilitation Cum amalgamation scheme envisages settlement of dues of the bank & institution.10 each of the transferee company for 13 equity share of face value Rs. payment to pressing creditors besides capital expenditure of Rs 163 lakhs .
00 .00 (Rs in lakhs) 477.00 20.Cost of the scheme Capital expenditure Settlement of dues of the banks Payment of unsecured loans from Payment of pressing creditors Margin money for working capita TOTAL Means of finance Promoter’s contribution out of internal accruals of NCL Benefit under section 72 A of IT Act.00 18.00 877.00 400.00 619.00 877.1961 TOTAL (Rs in lakhs) 163.00 57.
400 lakhs . with NCL was under section 72A of the IT Act.1994 • The carried forward accumulated loss of NBL is estimated at Rs 1896 lakhs as on 31 March 1994 • The estimated tax set –off at the current rates of IT Act .1961 and shall be effective from 1 April . 1961 is restricted to Rs.• The scheme for amalgamation of NBL.
• • • • • • Synergistic operating economies Diversification Taxation advantages Growth advantage Managerial motivate Acquisition of specific asset .
may get eliminated • Efficient & growing medium or small-sized undertaking • May exercise a market power to the detriment of its customers & suppliers .• Dilution of competition in the market • Actual or a potential competitor.