TY.B.

COM BANKING & INSURANCE

SUBJECT: TURNAROUND MANAGEMENT.

LECTURES CONDUCTED BY PROF. BHARTI VALECHHA.

CHAPTER- 2 INDUSTRIAL SICKNESS.

MEANING.
Sick industrial company means a company fulfilling the following conditions:
The company should have accumulated losses equal to or exceeding its net worth at the end of any financial year. Net Worth means the sum total of paid-up capital and free reserves.

DEFINITIONS.
According to Sick industrial companies Act,1958:A sick industrial company is an industrial company being

a company registered for not less than 7 years which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth and has also suffered cash losses in that financial year immediately preceding it.
The company should have accumulated losses equal to or exceeding its net worth at the end of any financial year. Net Worth means the sum total of paid-up capital and free reserves.

There are two types of industrial sickness. They can be classified as:-

Actual Sickness. Potential Sickness.

Actual Sickness:A company is said to be actually sick when:

a) There is erosion of net worth by 50% or more. b) The unit was kept closed for a total period of six months or more during previous year. c) The unit defaults in payment of loan installments.

Potential Sickness:A unit is said to be potentially sick when the capacity utilization is less than 50% of highest achieved during the preceding 5 years.

The causes of industrial sickness can be broadly classified into two types. They are:-

Internal(Controlla ble)Causes.

External(Uncontrolla ble)Causes.

Internal (Controllable) Sickness:1. 2. 3. 4. 5. Mismanagement. Defective financial structure. Underestimation of cost of project. Delay in supplementary of the project. Increase in cost due to delay in implementation of project. 6. Under utilization of resources. 7. Diversion of funds. 8. Lack of management depth. 9. Bad industrial relations. 10. Bureaucratic management. 11. Inadequate working capital. 12. Heavy expenditure in advertisement.

External (Uncontrollable) Causes:1. Adverse government rules and regulation. 2. Adverse product-price control policy. 3. Recession trend/economic conditions. 4. Social and political atmosphere around company. 5. Tough competition in the market. 6. Shortage of basis resources. 7. Change in technology. 8. Change in consumer behavior. 9. Shortage of power supply. 10. Delay in getting any financial assistance.

Symptoms Of Sickness Of An Industry:Following are some of the symptoms of industrial sickness:1. Frequent liquidity problems, Rapid fall of share prices on stock market, fall in sale/profits, rapid increase in debtors, Reduced Working Capital, etc. 2. Unfavorable Market Development. 3. High Managerial turnover. 4. Labour unrest. 5. Rise in staff and customers complaints and failure to respond such complaints. 6. Declining morale of the employees. 7. Lack of planning and strategic thinking. 8. Strike, lock-out.

Remedial Measures:The measures that can be taken to prevent industrial sickness are:1. Supervision on division of funds. 2. Different penalties. 3. Nationalization. 4. Restructuring. 5. Financial assistance. 6. Services of experts. 7. Tax exemption. 8. Workers participation. 9. Mergers. 10. Re-organization.

BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR).

Under the provision of SICA (Sick Industrial Companys Act),1985, the central government has established Board For Industrial And Financial Reconstruction (BIFR)(presently situated at Delhi) consisting of experts for timely detection of sick and potentially sick companys.
The Board Of expenses named the Board Of Industrial and Financial Reconstruction (BIFR) was set up in Jan 1987 functioning with effect from 11th May 1987.

The BIFR will make such enquiry as it may deem fit for determining whether:The concerned company has become sick, such enquiry can be made by BIFR upon the receipt of information from the Board Of Directors of the concerned company or From other agencies kike Central Government, RBI etc. or Upon its own knowledge as to the financial positions of company.

If Board is not satisfied after the completion of enquiry then the operating agency shall within the period of 90 days from the date of such order shall prepare a scheme which may provide any one or more of the following measures:Financial Construction Change In Management Amalgation Rationalization of a part or whole Any other measure.

Business Ethics
The oxford Dictionary defines it as the science of morals in human conduct, a moral principle or code.
Business ethics encompass how a person in business deals with employees, associates of all kinds. No business can really go to state of sickness if done honestly.

The term ethics refers a Code of Conduct that guides an individual while dealing with others.

It relates to the social rules and cardinal values that motivate people to be honest in dealing with others. Such ethical rules are determined largely by customers, traditions and prevailing environment. Every professional activity ha its own ethical standards. Similarly, the business has its ethical standards. Businessman should follow these standard so that business will expand, get public support and will be useful to consumers and other social groups.

Definition:
According to Wheeler, Business ethics is an art or science of maintaining harmonious relationship with society, its various groups and institutions as well a reorganizing the moral responsibility for the rightness or wrongness a / business conduct.