Unit-5 Amalgamation of Sick Companies.pptx

Widespread industrial sickness impacts the economy in a number of ways. It can result in loss of government revenue, tying up scarce resources in sick units, increasing non-performing assets held by banks and financial institutions, increasing unemployment, loss of production and poor productivity. SICA was implemented to rectify these adverse socioeconomic consequences.
The Sick Industrial Companies Act (SICA) identified a number of internal and external factors responsible for this epidemic.
Internal factors within the organizations included mismanagement, overestimation of demand, wrong location, poor project implementation, unwarranted expansion, personal extravagance, failure to modernize and poor labor-management relationships. External factors included an energy crisis, raw materials shortage, infrastructure bottlenecks, inadequate credit facilities, technological changes, and global market forces.
The Sick Industrial Companies Act of 1985 (SICA) was a key piece of legislation dealing with the issue of rampant industrial sickness in India. The Sick Industrial Companies Act (SICA) was enacted in India to detect unviable ("sick") or potentially sick companies and to help with their revival, if possible, or their closure, if not.
This measure was taken to release investment locked up in unviable companies for productive use elsewhere.
Widespread industrial sickness impacts the economy in a number of ways. It can result in loss of government revenue, tying up scarce resources in sick units, increasing non-performing assets held by banks and financial institutions, increasing unemployment, loss of production and poor productivity. SICA was implemented to rectify these adverse socioeconomic consequences.
The Sick Industrial Companies Act (SICA) identified a number of internal and external factors responsible for this epidemic.
Internal factors within the organizations included mismanagement, overestimation of demand, wrong location, poor project implementation, unwarranted expansion, personal extravagance, failure to modernize and poor labor-management relationships. External factors included an energy crisis, raw materials shortage, infrastructure bottlenecks, inadequate credit facilities, technological changes, and global market forces.
The repeal of SICA came into full effect on December 1, 2016. It was fully repealed, in part, because some of its provisions overlapped with the Companies Act of 2013. The Companies Act included the creation of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). The NCLT can hear cases related to the management of a company, mergers, and rehabilitations of companies, among other issues. Adding to the NCLT's authority is the Insolvency and Bankruptcy Code of 2016, which states that corporate insolvency processes can be initiated before the NCLT.
Chapter XIX (Chapter 19) of the Companies Act, 2013 deals with revival and Chapter XIX (Chapter 19) of the Companies

1. Unit-5 –Amalgamation of Sick Companies By- Ms. Shivangi Sinha Assistant Professor NLC BVDU, Pune

2. Outcome:- Definition of Sick Companies Revival of Sick Companies Preparation of Sick Companies Sanction of Scheme Insolvency Procedure under IBC Code, 2016

3. Definition of Sick Companies:- The Sick Industrial Companies Act of 1985 (SICA) was a key piece of legislation dealing with the issue of rampant industrial sickness in India. The Sick Industrial Companies Act (SICA) was enacted in India to detect unviable ("sick") or potentially sick companies and to help with their revival, if possible, or their closure, if not. This measure was taken to release investment locked up in unviable companies for productive use elsewhere.

4. Sick Industrial Companies Act (SICA) Widespread industrial sickness impacts the economy in a number of ways. It can result in loss of government revenue, tying up scarce resources in sick units, increasing non-performing assets held by banks and financial institutions, increasing unemployment, loss of production and poor productivity. SICA was implemented to rectify these adverse socioeconomic consequences. The Sick Industrial Companies Act (SICA) identified a number of internal and external factors responsible for this epidemic. Internal factors within the organizations included mismanagement, overestimation of demand, wrong location, poor project implementation, unwarranted expansion, personal extravagance, failure to modernize and poor labor-management relationships. External factors included an energy crisis, raw materials shortage, infrastructure bottlenecks, inadequate credit facilities, technological changes, and global market forces.

5. SICA Legislation and Provisions:- An important SICA provision was establishing two quasi-judicial bodies–the Board for Industrial and Financial Reconstruction (BIFR), and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). BIFR was set up as an apex board to spearhead handling the industrial sickness issue, including reviving and rehabilitating potentially sick units and liquidating non-viable companies. AAIFR was set up to hear appeals against BIFR orders. SICA was repealed and replaced by the Sick Industrial Companies (Special Provisions) Repeal Act of 2003, which diluted some SICA provisions and plugged certain loopholes. A key change in the new act was that apart from combating industrial sickness, it aimed to reduce its growing incidence by ensuring that companies did not resort to a sickness declaration merely to escape legal obligations and gain access to concessions from financial institutions. 

6. Continued:- The repeal of SICA came into full effect on December 1, 2016. It was fully repealed, in part, because some of its provisions overlapped with the Companies Act of 2013. The Companies Act included the creation of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). The NCLT can hear cases related to the management of a company, mergers, and rehabilitations of companies, among other issues. Adding to the NCLT's authority is the Insolvency and Bankruptcy Code of 2016, which states that corporate insolvency processes can be initiated before the NCLT.

7. Procedure For Revival Of Sick Company Under Companies Act:- Chapter XIX (Chapter 19) of the Companies Act, 2013 deals with revival and rehabilitation of sick companies. It exclusively covers the provisions for the determination of sickness, application for revival and rehabilitation, appointment of interim administrator, committee of creditors, appointment of administrator, powers and duties of company administrator, scheme for revival and rehabilitation, sanction of scheme, implementation of scheme, winding up of company on the report of certain administrators, punishment for certain offences, assessment of damages against delinquent directors, etc. 

8. Determination of Sickness:- Section 253 of the Companies Act, 2013 talks about the determination of the sickness of a company. According to it any secured creditor of a company representing 50% or more of outstanding amount of debt, the company has failed to pay the debt within a period of thirty days of the service of the notice of demand or to secure or compound it to the reasonable satisfaction of the creditors, then any secured creditor shall file an application to the tribunal in a prescribed manner along with references of all such evidence for such default, non-payment, etc. On the receipt of the application from the secured creditor, then the tribunal shall decide within sixty days on to the merit of the application that whether a company has become sick or not.

9. Continued:- Once the tribunal is satisfied that a company has become a sick company, and it is in a position to repay its debts, within a reasonable time, it shall order the company to repay its debts. On satisfaction, the tribunal shall give a reasonable time to the company to make payment of its debts. Now the provisions of Companies Act 2013, under section 253-269 stands omitted by the Insolvency & Bankruptcy Code, 2016, section 255 & Schedule XI (2016).

10. Application for Revival and Rehabilitation:- Section 254 of the Companies Act, 2013 talks about the application for revival and rehabilitation and according to which any company that has been determined as sick company under section 253 of the Act can make an application to the tribunal to order for necessary steps to be taken for its revival and rehabilitation and the application shall be accompanied by- Audited financial statements of the company relating to the immediately preceding financial year; Such particulars and documents, duly authenticated in such manner, along with such fees as may be prescribed. A draft scheme for revival and rehabilitation of the company in such manner as may be prescribed. The application shall be made to the tribunal within sixty days from the date of determination of the company as a sick company by the tribunal under section 253 of the Companies Act, 2013.

11. Insolvency and Bankruptcy Code, 2016 and the Treatment of Sick Companies:- After the incorporation of the  Insolvency and Bankruptcy Code, 2016  the proceedings pending under the SICA stood abated. In addition to that, Sick Industrial Companies (Special Provisions) Repeal Act, 2003 via notification dated 25.11.2016 and with effect from 1.12.2016 repealed the SICA, 1985. After an amendment through  IBC, 2016 to Section 4 (b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, earlier incorporated provision for references and inquiry in accordance with the Companies Act, 1956 was substituted with references and inquiry in accordance with the IBC, 2016.

12. Continued:- With respect to code, any reference made or inquiry etc. pending before the Board or the Appellate Authority under the Sick Industrial Companies (Special Provisions) Act, 1985 stood abated and would henceforth to be guided and proceeded in accordance with Section 4 (b) as amended and substituted by the code. The term of 180 days from the commencement of the IBC has been provided for companies to make reference before NCLT in respect of above-abated reference, appeal or inquiry. 

13. Measures under IBC Code:- After the Tribunal is satisfied that a company has become a sick company time is given to the company to pay off its debts if the Tribunal feels that the company will be able to clear its debts within given time frame. Submit an application to the tribunal under after identifying a company as a sick company. Once the application is received the Tribunal fixes a date within 7 days for hearing and an interim administrator would be appointed of the Companies Act. T o mediate a meeting of creditors of the sick company, tribunal may appoint the interim administrator as company’s administrator to align functions as per Tribunal’s directions. The administrator has to prepare a report which should provide measures for company’s revival and rehabilitation. 

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