Pillai Institute of Management Studies and

Research (PIMSR),
New Panvel

Master of Management Studies (MMS)

MMS Semester - 3
Subject : Advanced Financial Management
(AFM)

Lesson : Financial Management of Sick Units

(Theory only)
(Session : ,
date :

by
Prof. K.G.S. MANI

Lecture date :
Lesson : Financial Management of Sick Units
(1) Definition and Meaning of Sick Unit :
(a) According to Sick Industrial Companies Act (SICA)
1985, an industrial company is defined as sick when (i)
it was in existence for not less than 7 years, (ii) its net
worth was eroded by losses, and (iii) incurred cash
losses for the current year and the preceding year
(previous year) (to explain : what is cash loss)
(b) Accordingly to Companies Act 2013, a sick industrial
company means an industry company which has (i)
accumulated losses in any financial year which are
equal to 50% or more of its average net worth during 4
years immediately preceding such financial year, or(ii)
company which
3

failed to repay its debt within any three consecutive

quarters on demand made in writing for its repayment of
a creditor(s) (Banks and Financial Institutions) of such a
company. (i) default in repayment of debt is enough to
declare a unit as sick. (ii) If the loan account of the unit
becomes a Non-Performing Account in the banks books,
it can be declared as sick unit. (Point : although this
definition is covered under the Companies Act 2013,
definition under SICA Act is applied by the banks,
because that definition is clear about actual reasons for
sickness of the companies).
(2) Signals of sickness : The following actions of the a
unit indicate that the unit is already sick or going to
become sick :
(i) Continuous irregularities in cash credit account (loan
account of the bank);
(ii) Low capacity utilisation;
4

(iii) Profit fluctuations, downward trend in sales and

stagnation or fall I profits followed by fall in share value
of the company in the stock exchange.
(iv) High rate of rejection of goods manufactured due to
poor quality.
(v) Reduction in the credits turnover in the account of bank
(example : company will open separate current account
with another bank and route the sales realisations with
them during the time of financial difficulties);
(vi) Failure to pay statutory liabilities such as advance tax,
sales tax, service tax, etc (example : non-payment of
advance tax)
(vii) Larger and longer outstandings in the bills accounts in
the bank (example : unrealised bills, fake bills, etc).
(viii) Longer period of credit allowed on sales and bills
negotiated through the bank and frequent returns by
customers of the same.
5

(ix) Constant utilisation of credit facilities to the full extent

and failure to pay timely instalments of principal and
interest on the loans.
(x) Non-submission of financial data and stock statement,
and production data, etc. in time.
(xi) Financing capital expenditures from out of funds
provided for working capital purposes. It means diversion
of short term loans (repayable within one year) for
purchase of fixed assets (long term uses).
(xii) Increase in raw-material, sundry creditors due to
production bottleneceks/problems.
(xiii) General decline in that particular industry combined
with many failures (example : Cement, Steel Industries
due to decline/slow growth in infrastructure projects).
(xiv) Sudden change in top management and rapid
turnover of labour class and other employees.
6

(xv)Existing of a large number of law suits against the

company.
(xvi)Rapid expansion and too much diversification with a
short time.
(xvii)Diversion of funds for purposes other than running the
units.
(xviii)Any major change in the shareholding pattern in the
company.
(3) Causes of Industrial Sickness :
According to Reserve Bank of India, the important
causes of industrial sickness are as under :
(i) Mismanagement
(ii) Faulty Planning
(iii) Market Recession
(iv) Labour Unrest
(v) Shortage of materials

The causes of industrial sickness can also be classified

as follows:
(a) Internal causes :
Internal causes re directly related to various functioning
reas which are given below :
(i) Improper project planning
(ii) Poor financial planning
(iii) Mismanagement of funds
(iv) Inefficient working capital management
(v) Faulty location
(vi) Ineffective production planning and control
(vii)Lack of quality control
(viii)Inappropriate product mix
(ix) Low capacity utilistion
(x) Defective pricing policy
8

(b) External Causes :

External causes which lead to industrial sickness are as
follows:
(i) Scarcity of finance
(ii) Delay in getting finance
(iii) Unfavourable investment climate
(iv) Inadequate supply of input
(v) Import restrictions
(vi) Industrial unrest
(vii)Government price controls
(viii)Recession fall in domestic and export demand
(ix) Natural calamities
(x) Power shortage

(4) Stages of Industrial Sickness :

A company/unit does not become sick suddenly. There
are certain signals of sickness. An industrial unit
generally passes through the following stages before
becoming sick.
(a) Healthy stage : An industrial unit is healthy when all
functional areas such as production, marketing, finance,
personnel are working efficiently. The unit/company
makes satisfactory profits. Its debt equity ratio is
satisfactory. The net worth is positive and the current
ratio is around 2 : 1.
(b)Moving towards sickness :
An unit is moving
towards sickness when its profits start declining and it
also starts facing problems of finance. There may be
shortage of cash and problem of liquidity. It expects to
generate losses in the future.
(c) Incipient sickness : In this stage the unit incurs cash
losses in the current year. It is also expected to incur
10
cash losses n the next year. The current ratio falls below

(d) Sickness: In this stage, the functional areas of the

company/ unit becomes inefficient. This unit suffers cash
losses in the previous year and also during current year.
It expects to repeat the bad performance even in future.
The symptoms of sick unit remain present in case of the
unit/sick company.
(5) Symptoms of Industrial Sickness :
Sickness creeps into the industrial unit in a gradual and
slow moving way. If the incipient sickness is not detected
in its early stages, it becomes chronic over a period of
time and ultimately ends up with closure of the unit.
Therefore, the management is required to recognise the
symptoms of sickness and set its right immediately to
avoid the closure. The following are the symptoms of
industrial sickness :

11

(i) Shortage of liquid funds : A sick unit faces the problem

of cash. Its cash inflow goes on reducing. It faces the
problem of cash to meet its regular payments. Such as
wages, salaries and other regular expenses. It also find
it difficult to make statutory payments like provident
funds, taxes, etc.
(ii) Increase in stock of inventory : A sick company is
unable to sell its products in the market. The production
is continued and therefore the stock of raw materials as
well as finished goods goes on increasing. As the stock
of inventory is increased, the funds of the company are
blocked and it finds it difficult to get cash for making
regular payments.
(iii) Underutilistion of capacity : A sick unit fails to use
available resources to utilise full capacity. It is due to
limited market demand or inability to purchase raw
materials in required quantities. Poor maintenance of
plant and machinery is also one of the symptoms of
industrial sickness.
12

(iv) Low return on investment : A unit which fails to get

reasonable return on investment is treated as a sick unit.
Every business is expected to get reasonable return on
its investment in the business.
(v) Inability to meet interest payment : A sick company
faces the problem of cash. Therefore, it is unable to pay
the interest payment. There is also delay in the interest
payment of loan instalments. The bank accounts are also
not maintained properly. Thus, the sick company is
unable to meet the interest payments.
(vi) Unfavourable Current Ratio : The normal current ratio
of a firm should be 2 : 1. If it is less than 2 : 1 it is
difficult for the firm to pay its regular payments. If the
current ratio is less than 1 : 1, then the firm cannot make
its payments due to shortage of cash.
(vii) General factors : The other general symptoms of
industrial sickness are as follows :
(a) Decline in the market share,
13
(b) Frequent breakdown of plant and machinery,

(c ) High labour turnover

(d) Absence of cordial industrial relations
(e) Low rate of dividend
(6) Scheme of Revival of Sick Companies under
Companies Act 2013:
The company administrator shall prepare scheme which
may provide for any one or more of the following
measures :
(i) Financial reconstruction of the sick company,
(ii) Proper management of the sick company by any
change in, or by taking over, the management of such
company,
(iii) Amalgamation of (a) the sick company with any other
company, or (b) any other company with the sick
company,
(iv) Take over the sick company by a solvent company,
14

(v) Sale or leave of a part or whole of any asset or business

of the sick company,
(vi) Rationalisaton of managerial personnel, supervisory
staff and workmen in accordance with law,
(vii)Such other preventive, ameliorative and remedial
measures as may be appropriate,
(viii)Repayment of rescheduling or restructuring of the
debts or obligations of the sick company to any of its
creditors or class of creditors,
(ix) Such incidental, consequential or supplemental
measures as may be necessary or expedient in
connection with or for the purposes of the measures
specified in the Companies Act 2013.

15

(7) Nursing Programme for a sick company / unit :

A nursing programme for rehabilitating a sick
company/unit may be drawn up by the concerned banks
and financial institutions. In case a sick company is
found viable, they a programme or scheme for its
revival is planned, which is known as nursing
programme. The object of a nursing programme is to
improve the capability of the unit to generate internal
surplus. Thus, a nursing programme is a systematic
approach developed by a management or financial
institution for rehabilitating a sick unit. The following
steps should be followed while preparing an effective
nursing programme for rehabilitating a sick unit.
(i) Analysis of the past operations;
(ii) Determination of the viable levels of operations;
(iii) Investigating the feasibility of operating at this level
within the prevailing business conditions;
(iv) Determination of funds required for financing the
16
current operations;

(v) Determination of sources of funds;

(vi) Drawing an action plan which will effectively overcome
the weaknesses;
(vii) Identify the key performance indicators for close
monitoring of operations;
The basic factors to be kept in mind while preparing a
nursing programme are as follows :
(i) Considerable debt burden;
(ii) No margin or scope for errors;
(iii) Additional sources of finance;
(iv) Gradual liquidation of irregularity;
(v) No delay in decision making for rehabilitation

17

Management of finance is an area of weakness in many

sick companies. The sickness of an unit is directly
attributable to lack of proper management of finance.
The nursing programme should ensure that this
weakness is rectified. The nursing of sick units is an area
where management consultants can be employed. The
consultant will be useful in the preliminary investigation,
preparing an action plan and also in the implementation
of the action plan. A nursing programe is only of a short
duration. The capacity to generate internal surplus will
be evident in a short duration. The capacity to generate
internal surplus will be evident in a short period. If the
nursing programme does not yield the desired results,
and further attempts are considered futile, the company
will be terms as a sick unit and steps can be taken to
close the company/unit.

18

(8) Rehabilitation of Sick Companies :

For the rehabilitation of sick companies, revival package
has to be drafted by the bank(s) as per the direction of
Board for Industrial and Financial Reconstruction (BIFR).
The pcakge includes the following :
(i) Conversion of cash losses into interest-free loans or
equity;
(ii) Moratorium (means no payment period) on repayment
of all loans;
(iii) Interest holiday on the outstanding government loans;
(iv) Write-off of outstanding loans;
(v) Conversion compound interest into simple interest;
(vi) Conversion of loans into equity;
(vii)Conversion of outstanding dues (accumulated interest
and other amounts) in cash credit accounts into
working capital term loan (WCTL)
19

(viii) Conversion of outstanding dues (accumulated interest

and other amounts) in the term loan accounts into
Funded Interest Term Loan (FITL);
(ix) Concession on existing power tariff by the State
Government;
(x) Release of fresh loans by the banks and financial
institutions for rehabilitation of the company and for
starting business operations.
(9) Remedies for sickness :
(a) Preventive Measures :
This includes preventing sickness from occurring and
the following measures are to be initiated for
continuous Monitoring of sick companies :
(i) Periodic financial reports;
(ii) Close monitoring of rehabilitation packages and
facilities by the banks and financial institutions;
20

(iii) Banks nominee director and representatives of

Financial Institutions to be appointed on the board of the
sick companies.
(iv) Periodical inspections by banks and financial
institutions to assess the progress achieved in the
implementation of rehabilitation packages and facilities
to the rehabilitated companies.
(v) Inter-institutional review of the rehabilitation of the
company (in the case of consortium advances, all banks
should review independently about the progress).
(vi) Market Intelligence Report about the company for
assessing the market perception of the rehabilitated
company to review the banks decisions.
(vii) Periodical audits to be conducted through external
Chartered Accounts to ensure that the company is
progress well under the rehabilitation programme and
there is no slippage in the progress as compared to
targeted levels of progress during the course of
21
rehabilitation process.

(b) Curative Measures :

Under this approach, the sick companyu should be
referred to the Board for Industrial and Financial
Reconstructin (BIFR) constituted under the Sick Industrial
Companies Act 1985 (SICA).
BIFR will examine all
aspects of the company and may declare the company
as sick company. Thereafter, BIFR will give direction to
the Bank(s) and Financial Institutions to work out a
revival package and implementation of the revival
package for nursing the sick company back go normal
health. If the sick company is not viable, banks and
Financial Institutions may make a representation to BIFR
seeking permission to declare the company for
liquidation. Accordingly, BIFR would re-examine and
would pass order for liquidating the company.
Thereafter, the company will be liquidated as per the
procedures laid down under SICA Act and Companies Act
2013 and also through the intervention of the Court
order for liquidation.
22

(10)Financial Management of Sick Companies /

Units :
The sickness of an industrial unit/company is a gradual
and slow moving process. If such a sickness is not
detected in its early stages, it becomes chronic over a
period of time. It ultimately ends-up with closure of the
company/unit.
The management is required to
recognise the symptoms of sickness and set it right
immediately to avoid the deterioration in it financial
position in future. The management can engage the
services of specialists for proper diagnosis of the
situation. A planned course of action with co-ordination
of all functions and staff can enable to counter the
sickness. The real situation can be put before the
shareholders,
Banks
and
financial
institutions,
Government and creditors to bring the operation for the
smooth flow.
Industrial sickness has multiple effects including gross
underutilistion of productive facilities, longer waking
23

of orders, failure to maintain repayment schedule for

term loans, etc will result into increasing and further
mounting of losses. The financial managers should see
that the three important factors i.e. cash position, net
working capital and net worth of the company are
positive. They should also monitor the following cash
flow related variables and improve the overall financial
position of the company.
(i) EBDT to Total Assets :
EBDT to total assets ratio can be determined as
follows :
= (EBDT / Total Assets) x 100
EBDT represents the earnings before depreciation and
taxes. Total assets are fixed assets and current assets.
Higher ratio indicates efficiency and profitability. This
ratio is a measure of true productivity of the companys
assets. It indicates how effectively the resources of a
24
company are deployed in its assets. This ratio also

the assets. The survival of the company depends directly

on the earning power of the company. A higher cash
flow to total assets ratio show the signs of stronger
financial health of the company.
(ii) EBDT to Net Sales :
The operating efficiency of the company to generate
cash from business can be judged from the relationship
between the cash flow and net sales. The formula is used
as follows :
= (EBDT / Net Sales) x 100
EBDT represents the earnings before depreciation and
taxes. Net sales are sales minus sales returns. The ratio
relates the resources inflow to the amount of sales. It
indicates the cash generating capacity. It should be
higher as compared to industry.
25

(iii) EBDT to Net Worth :

Formula : (EBDT / Owners funds) x 100
EBDT to net worth indicates the extent to which the
company has utilised the owners funds and it helps to
evaluate the financial solvency of a company in terms of
its ability to avoid financial risk. A lower value indicated
less cash generation and a negative ratio indicates
failure of business. A higher trend of this ratio indicates
more inflow of cash and contributes to net worth position
of the company which is a sign of efficiency.
(iv) EBDT to Total Capital :
This ratio provides the idea about how objectively and
efficiently the capital is being utilised to generate cash
for operational purposes. It is determined as follows :
= (EBDT / Total Capital Employed) x 100
26

This ratio provides the information on the ability of the

company to pay regular interest and dividend. A high
ratio reveals efficient utilisation of capital employed in
the business, whereas low ratio indicates signs of
sickness.
(v) EBDT to Current Assets :
This ratio provides the companys ability to manage the
working capital as well as credit policy with reference to
sales. The value is determined as follows.
Formula : (EBDT / Current Assets) x 100
This ratio also indicated how the current assets are
utilised in the business. The value of inventories assume
greater significance in prediction of corporate health
where
large portion of the current assets of the
company are in the form of inventories. In that case also,
company may fail despite strong liquidity position.

27

These financial ratios possess discriminating as well as

predictive powers. The discrimination can be made
between sick and non-sick companies.
It can also
predict the potential corporate sickness at high degree
of accuracy when ratios re used on individual cases. The
banks,
financial
institutions,
management
and
Government can use these ratios to study and monitor
the financial health of the companies. Apart from the
above ratios the following ratios re also useful in
indicating the symptoms of industrial sickness.
Symptoms / Problems
Accounting ratio to be used
(1) Inability to pay interest - Interest coverage ratio
(2) Low capacity utilisation - Fixed Assets Turnover ratio
(3) Inefficiency in collecting of debts - Debtors turnover
ratio
(4) Liquidity position / problems - Current ratio and Liquid
ratio

28

(5) Inability to pay dues of the financial institutions - Debt

service coverage ratio.
(6) Mismanagement of funds - Current Ratio and Fixed Assets
to long term loans
(7) Falling demand for the product in the market - Inventory
turnover ratio
(8) Efficiency of working capital - Inventory turnover ratio
(9) Insolvency position - Debt equity ratio and Return on
investments
(10)Inefficiency in collecting receivables
Average
collection period or Debtor turnover ratio
The analysis of certain ratios calculated on the basis of
information taken from the financial statements allow the
analyst to predict sickness. Ratios are independent of
each other. Therefore it would be more useful if important
ratios re combined to gather to measure the probability of
sickness.
29

(11) Financial Models :

(i) Multiple
Discriminant
Analysis (Altmans Z
score Model) :
Edward Altman had developed (1968) a multiple
discriminant analysis also know as Z score model, to
detect the financial
health of industrial units /
companies with a view to prevent the industrial
sickness. It is a mathematical formula used to develop
five variables given below :
Formula :
Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
X1
X2
X3
X4
X5

=
=
=
=
=

Working capital / Total assets

Retained earnings / Total assets
Earnings before interest and taxes / Total Assets
Market value of equity / book value of total debt
Sales / Total assets
30

Z score model can be analysed as follows :

(i) Sickness is predicted based on the value of Z
(ii) If the value of Z is more than 2.99, there is no danger
of bankruptcy.
(iii) If the value of Z is below 1.81, there is a definite
failure.
(iv) If the value of Z is between 1.81 and 2.99, there is a
grey area.
Altman developed a guideline for Z value as follows :
(v) If value of Z is above 2.675, the firm can be treated as
financially sound.
(vi) If value of Z is below 2.675, the firm is heading
towards bankruptcy.

31

Altmans model has established as the leading

multivariate predictor model of corporate failure. It has
been the subject of numerous tests around the word. It
can be useful to employ the model in evaluating Indian
Companies to assess the degree soundness and financial
health.
(ii) Taffler and Tisshaw Model :
R.G. Taffler and H. Tisshaw developed two Z scales. One
scale is used for quoted manufacturing companies and
the other is used for non-quoted manufcturing
companies with turnover of Pounds 0.50 million and
above of U.K. companies. The statistical analysis is made
with the use of the following formula :
Z = C0 + C1R1 + C2R2 + C3R3 + C4R4
Explanations : see next slide

32

C0 to C4 re co-efficient
R1 = Profit before tax / Current liabilities
R2 = Current Assets / Total liabilities
R3 = Current liabilities / Total Assets
R4 = (Immediate Assets Current liabilities / Operating
costs
excluding
depreciation
The four ratios combine various aspects of profitability
and solvency to produce a zero score. When they turn to
the unquoted manufacturing firms, the formula
comprises five ratios. Taffler and Tisshaw claimed good
result for their formula but because of their proprietary
interest, they were not willing to publish the co-efficients
of their equations. Therefore, it is not possible for others
to test and comment on the particular models.
33

(iii) Beaver Model :

W.H. Beaver tested groups of ratios covering cash flow,
net income, capital gearing, liquidity and turnover in the
year 1966. His research indicates that cash flow to total
debt was the best predictor of industrial sickness. In his
study, he carried out a more detailed analysis of the
liquidity ratio and their potential as predictors of
business failure. He made the following generalisations
about failing companies :
(i) They generate less sales and the sales growth is less
than that that of non-failed companies.
(ii) They have less current assets but more current debts
(short term loans)
(iii) They have less inventory than non-failed companies.
This analysis further showed that the Net working
capital and quick assets ratios predicted better than the
current assets ratios. The cash ratio predicted is the
best of all.

34

(12)Non-financial indicators of sickness :

Ross Royce has analysed the factors associated with
industrial sickness and closure of business. He has
given six causes of failure of business which are as
follows :
(i) Over trading
(ii) High gearing
(iii) Lack of accounting information
(iv) Bad management structure
(v) Not responding to change
(vi) Involving with a big project
Argenti has stressed on non-financial indicators of
sickness. He mentioned that we must have an intimate
knowledge of the company and its management. The
failure of business firm is seen as the culmination of
sequence starting with management defects that
35
brings mistakes. Argenti states that if a company

is in trouble then that is due to the management defects

and the consequent mistakes which will have been there
for a number of years. These should be noticed by a
careful observation long before the signs of financial
distress arises. Argenti attempts to qualify a quantitative
judgment. Therefore, highly subjective and the observer
needs to visit the company and its factories, meet its
directors and get to know them well in order to make
objective analysis.
(13) Principles to avoid corporate failures :
Ross Royce and Kami, after an extensive analysis of a
large number of American companies, both successful
and unsuccessful, came up with a list of 10 basic
principles of management which may avoid failures.
These principles are given below :
(see next slide)

36

(i) Avoid one man rule

(ii) Develop and communicate a strategy
(iii) Provide management depth
(iv) Keep informed of change and react to change
(v) A unified sense of direction
(vi) Exercise care in the selection of Board of Directors
(vii)Do not overlook the customer and the customers view
power
(viii)Use but do not misuse computers
(ix) Do not engage in accounting manipulations
(x) Provide for an organisatonal structure that meets the
needs of the people.

37

(14)
Working
Capital
Management
of
sick
companies :
Industrial sickness is caused due to various factors.
These factors may be internal or external. However, the
sickness maybe attributed to the poor working capital
management. There are two concepts of working capital
namely gross working capital and net working capital. In
case adequate working capital is not available for this
period, the firm will not be in a position to sustain the
sales since it may not be in a position to purchase rawmaterials, pay wages and meet other expenses required
for manufacturing the products and to carry on with the
levels of sales to earn profits. The industrial sickness
caused may be attributed to the poor working capital
management. The following are some of the important
attributes :
(i) Poor financial planning
(ii) Poor resources management
38
(iii) Inadequate working capital

(v) Excessive holding of inventories

(vi) Faulty costing technique
(vii) Misuse of working capital
(viii) Inefficiency in collecting receivables
(ix) Excessive reliance on trade credit
(x) Bank finance not available in time
Planning and control of working capital in sick industries
need special attention. A detailed analysis of causes of
sickness is required for working capital management in
sick industry. The Finance Manager is required to take
steps to restructure the working capital requirements
and the banks may be approached for need-based
finance instead of operating on the basis of predetermined credit limits given by the bank. Efforts
should be made by the management to improve current
ratio and quick ratio, by reducing levels of investments
in stocks and receivbles.
39

The financial restructuring should be made to improve

the leverage ratios. Company should be make
arrangement with the banks for adequate working
capital requirements. It should neither be excessive nor
inadequate. Both situations are dangerous. Excessive
working capital means that the firm had idle funds which
earns no profits for the company. Inadequate working
capital means that the company does not have sufficient
funds for running its business operations, which
ultimately result in product interruptions and lowering
down the profitability. In the case of sick companies,
special attention should be made to get adequate
working capital to sustain production levels to achieve
the budgeted levels of sales to generate profits.
There is a direct relationship between risk and
profitability. The current assets are less profitable than
the fixed assets. The short funds re less expensive than
the long term funds. Thus, an increase in the ratio of
40

decline in the profitability of the company. This is

because investment in current assets is less profitable
than the investment in fixed assets. However, an
increase in this ratio would decrease the risk of the firm
becoming technically insolvent. On the other hand, a
decrease in the ratio of current assets to total assets
would increase the profitability of the company, because
investment in fixed assets is more profitable than the
investment in current assets. However, this will increase
the risk of the company becoming technically insolvent
on account of its possible inability of meeting its
commitments in time due to shortage of funds.
In this background, it is pertinent to state that the
efficient working capital management for providing
sufficient adequate short term funds for working capital
purposes is very important for sick companies to nurse
back to good health.
41

(15)Board for Industrial and Financial Reconstruction (BIFR)

:
BIFR was established in January 1987 under Sick
Industrial Companies Act 1985 (SICA). It is a quasijudicial body with wide powers with regard to sick
industrial companies for revival, change or takeover of
management,
reconstruction,
amalgamation
with
another company and sale of whole or part of the
company or winding up of the sick company. The
scheme of rehabilitation sanctioned under the orders of
BIFR shall be binding on all banks and Financial
Institutions.
On a reference being made by any of the banks
(example : SBI) or financial institutions (IFCI), BIFR will
examine the case under the provisions of SICA and
registers or declines to register depending upon the
merit of each case. After studying the case of the
42
company, BIFR calls for a meeting of all concerned

Company). The roles and responsibilities of Operating

Agency are as under :
(i) To go into the details of the report and to ascertain
whether the company is sick or not;
(ii) If it is sick, to suggest various steps and measures for
making its net worth positive;
(iii) To prepare scheme(s) providing for measures like
resonctruction, change of management, amalgamation
or even liquidation of the sick company;
(iv) To follow up and report to the BIFR from time to time.
BIFE comes to a conclusive decision, based on the
reports of the Operating Agency (Bank), after
discussing with the banks (who had financed the
company). Then it gives order to the banks/financial
institutions for implementation of rehabilitation scheme
/ package for the company and notification is issued
accordingly by BIFR.

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If the company is not viable, then BIFR can order for

winding up of the sick company. In such a case, the
matter goes to the High Court for winding up of the sick
company.
Now the responsibilities of BIFR has been taken over by
the National Company Law Tribunal.
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THANK YOU

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