Revival of sick industries

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

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-2/”>INFRASTRUCTURE bottlenecks, inadequate credit facilities, technological changes and global market forces.

Widespread industrial sickness affects the economy in a number of ways, such as 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 socio-economic consequences.

Revival and Rehabilitation of sick companies under new act 2013

Chapter XIX of the 2013 Act lays down the provisions for the revival and rehabilitation of sick companies. The chapter describes the circumstances which determine the declaration of a company as a sick company, and also includes the rehabilitation process of the same. Although it aims to provide comprehensive provisions for the revival and rehabilitation of sick companies, the fact that several provisions such as particulars, documents as well as content of the draft scheme in respect of application for revival and rehabilitation, etc. have been left to substantive enactment, leaves scope for interpretation.

The coverage of Sick Industrial Companies Act, 1985 (SICA) is limited to only industrial companies, while the 2013 Act covers the revival and rehabilitation of all companies, irrespective of their sector. The determination of whether a company is sick, would no longer be based on a situation where accumulated losses exceed the net worth. Rather it would be determined on the basis whether the company is able to pay its debts. In other words, the determining factor of a sick company has now been shifted to the secured creditors or banks and financial institutions with regard to the assessment of a company as a sick company. The 2013 Act does not recognise the role of all stakeholders in the revival and rehabilitation of a sick company, and provisions predominantly revolve around secured creditors. The fact that the 2013 Act recognises the presence of unsecured creditors, is felt only at the time of the approval of the scheme of revival and rehabilitation. In accordance with the requirement of section 253 of the 2013.

Overview of the process

In response to the application made by either the secured creditor or by the company itself, if the Tribunal is satisfied that a company has become a sick company, it shall give time to the company to settle its outstanding debts if Tribunal believes that it is practical for the company to make the repayment of its debts within a reasonable period of time.
Once a company is assessed to be a sick company , an application could be made to the Tribunal under section 254 of the 2013 Act for the determination of the measures that may be adopted with respect to the revival and rehabilitation of the identified sick company either by a secured creditor of that company or by the company itself. The application thus made must be accompanied by audited financial statements of the company relating to the immediately preceding financial year, a draft scheme of revival and rehabilitation of the company, and with such other document as may be prescribed.
Subsequent to the receipt of the application, for the purpose of revival and rehabilitation, the Tribunal, not later than seven would be required to fix a date for hearing and would be appointing an interim administrator under Section 256 of 2013 Act to convene a meeting of creditors of the company in accordance with the provisions of section 257 of the 2013 Act. In certain circumstances, the Tribunal may appoint an interim administrator as the company administrator to perform such functions as the Tribunal may direct.
The scheme thus prepared, will need to be approved by the secured and unsecured creditors representing three-fourth and one-fourth of the total representation in amounts outstanding respectively, before submission to the Tribunal for sanctioning the scheme pursuant to the requirement of section 262 of the 2013 Act. The Tribunal, after examining the scheme will give its approval with or without any modification. The scheme, thus approved will be communicated to the sick company and the company administrator, and in the case of amalgamation, also to any other company concerned.
The sanction accorded by the Tribunal will be construed as conclusive evidence that all the requirements of the scheme relating to the reconstruction or amalgamation or any other measure specified therein have been complied with. A copy of the sanctioned scheme will be filed with the ROC by the sick company within a period of 30 days from the date of its receipt.

Companies Act 2013 – Mergers and Acquisitions 2014

The 2013 Act features some new provisions in the area of mergers and acquisitions, apart from making certain changes from the existing provisions. While the changes are aimed at simplifying and rationalising the procedures involved, the new provisions are also aimed at ensuring higher accountability for the company and majority shareholders and increasing flexibility for corporates.

The section dealing with compromises and arrangements, deals comprehensively with all forms of compromises as well as arrangements, and extends to the reduction of share capital, buy-back, takeovers and corporate debt restructuring as well. Another positive inclusion within this section is that objection to any compromise or arrangement can now be made only by persons holding not less than 10% of share holding or having an outstanding debt amounting to not less than 5% of the total outstanding debt as per the latest audited financial statements.

Currently, under the 1956 Act, , there is no mandate requiring companies to ensure compliance with accounting standards or generally accepted accounting principles while proposing the accounting treatment in a scheme. However, listed companies are required to ensure such compliance as the Equity Listing Agreement mandates such companies to obtain an auditor’s certificate regarding appropriateness of the accounting treatment proposed in the scheme of arrangement. The 2013 Act requires all companies undertaking any compromise or arrangement to obtain an auditor’s certificate (section 230 and 232 of the 2013 Act). This requirement will help in streamlining the varied practices as well as ensuring appropriate accounting treatment. However, another aspect that is yet to be addressed is that the applicable notified accounting standards in India, currently, address only amalgamations and not any other form of restructuring arrangements.

The current procedural requirements in case of a merger and acquisition in any form are quite cumbersome and complex. There are no exemptions even in the case of mergers between a company and its wholly owned subsidiaries. The 2013 Act now introduces SIMPLIFICATION of procedures in two areas, firstly, for holding wholly owned subsidiaries and secondly, for arrangements between small companies (section 233 of the 2013 Act). Small companies is a new category of companies, introduced within the 2013 Act, with defined capital and turnover thresholds, which has been given certain benefits, including simplified procedures.

The 1956 Act, allows the merger of a foreign company with an Indian company, but does not allow the reverse situation of merger of an Indian company with a foreign company. The 2013 Act now allows this flexibility, with a rider that any such mergers can be effected only with respect to companies incorporated within specific countries, the names of which will be notified by the central government. With prior approval of the central government, companies are now allowed to pay the consideration for such mergers either in cash or in depository receipts or partly in cash and partly in depository receipts as agreed upon in the scheme of arrangement. (section 234 of the 2013 Act). These new provisions can be greatly beneficial to Indian companies which have a global presence by providing them structuring Options which do not exist currently.,

Sick industries are those that are not able to generate enough revenue to cover their costs. They may be losing Money, or they may be barely breaking even. Sick industries can be a drain on the economy, as they can lead to job losses and a decrease in tax revenue.

There are a number of reasons why an Industry might become sick. One reason is that the industry may be facing increased competition from foreign or domestic rivals. Another reason is that the industry may be suffering from technological change that has made its products or Services obsolete. Finally, the industry may be suffering from a decline in demand for its products or services.

Once an industry has been identified as sick, it is important to analyze the causes of its sickness. This will help to determine the best course of action for reviving the industry. The causes of sickness can be divided into two categories: internal and external. Internal causes of sickness include poor management, inefficient production methods, and outdated technology. External causes of sickness include changes in the market, government regulations, and natural disasters.

Once the causes of sickness have been identified, a revival plan can be developed. The revival plan should address the specific causes of sickness and should be tailored to the specific industry. The revival plan may include measures such as restructuring the industry, providing financial assistance to companies in the industry, or providing training to workers in the industry.

The revival plan must be implemented effectively in order to be successful. This requires the cooperation of all stakeholders, including the government, businesses, and workers. The revival plan must be monitored closely to ensure that it is on track. If the revival plan is not successful, it may need to be revised or abandoned.

The success of the revival plan should be evaluated after a reasonable period of time. The evaluation should assess whether the plan has achieved its objectives and whether the industry is now healthy. If the plan has not been successful, new measures may need to be taken to revive the industry.

There are a number of examples of successful revival plans. One example is the revival of the Japanese automobile industry in the 1980s. The Japanese government provided financial assistance to the industry, and companies in the industry cooperated to develop new technologies. As a result, the Japanese automobile industry became one of the most competitive in the world.

Another example is the revival of the American steel industry in the 1990s. The American government provided financial assistance to the industry, and companies in the industry cooperated to improve their efficiency. As a result, the American steel industry became one of the most competitive in the world.

Reviving a sick industry is a complex and challenging task. However, it is possible to achieve success with careful planning and execution. By identifying the causes of sickness, developing a revival plan, and implementing the plan effectively, it is possible to restore a sick industry to Health.

Here are some additional details on the revival of the Japanese automobile industry:

In the 1970s, the Japanese automobile industry was in crisis. The oil crisis had led to a decline in demand for automobiles, and Japanese automakers were facing increased competition from foreign rivals. In response, the Japanese government launched a series of measures to revive the industry. These measures included providing financial assistance to automakers, investing in research and development, and promoting exports. As a result of these measures, the Japanese automobile industry made a remarkable comeback. By the 1980s, Japanese automakers were among the most competitive in the world.

Here are some additional details on the revival of the American steel industry:

In the 1980s, the American steel industry was in decline. The industry was facing increased competition from foreign rivals, and many American steel mills were closing. In response, the American government launched a series of measures to revive the industry. These measures included providing financial assistance to steel mills, investing in research and development, and promoting exports. As a result of these measures, the American steel industry made a remarkable comeback. By the 1990s, American steel mills were once again competitive in the global marketplace.

What is a sick industry?

A sick industry is one that is in decline, with falling profits and increasing losses. This can be due to a number of factors, such as changes in technology, competition from overseas, or a decrease in demand for the industry’s products or services.

What are the causes of sick industries?

There are a number of factors that can cause an industry to become sick. These include:

Changes in technology: New technologies can make existing products or services obsolete, leading to a decline in demand for the industry’s products or services.
Competition from overseas: Industries that are not competitive with overseas producers can find themselves losing market share and profits.
A decrease in demand: A decrease in demand for the industry’s products or services can lead to a decline in profits and an increase in losses.

What are the effects of sick industries?

Sick industries can have a number of negative effects on the economy, including:

Job losses: As industries decline, they often lay off workers. This can lead to increased unemployment and economic hardship.
Decreased tax revenue: Sick industries often pay less in taxes, which can reduce government revenue.
Increased government spending: Sick industries often require government assistance, such as subsidies or bailouts. This can increase government debt.

What are the solutions to sick industries?

There are a number of solutions that can be used to revive sick industries. These include:

Government intervention: Governments can provide subsidies, bailouts, or other forms of assistance to sick industries.
Industry consolidation: Sick industries can consolidate with other companies in the industry to create larger, more competitive companies.
Innovation: Sick industries can innovate and develop new products or services to improve their competitiveness.
Workforce training: Sick industries can train their workers to develop new skills that will make them more valuable to the company.

What is the future of sick industries?

The future of sick industries is uncertain. Some industries may be able to revive themselves, while others may continue to decline. The government’s role in reviving sick industries is also uncertain. Some governments may be willing to provide assistance to sick industries, while others may not.

Sure, here are some MCQs on the topics of Industrial Policy, Competition Policy, and Regulatory Policy.

Industrial Policy

Which of the following is not a goal of industrial policy?
(A) To promote economic Growth
(B) To reduce inequality
(C) To protect the Environment
(D) To promote national security
Which of the following is an example of a government intervention in the market to promote industrial development?
(A) Providing subsidies to businesses
(B) Regulating the prices of goods and services
(C) Investing in infrastructure
(D) All of the above
Which of the following is a criticism of industrial policy?
(A) It can lead to inefficiency and waste
(B) It can be used to protect inefficient businesses
(C) It can be used to give an advantage to certain industries or companies
(D) All of the above

Competition Policy

Which of the following is not a goal of competition policy?
(A) To promote economic efficiency
(B) To protect consumers
(C) To promote innovation
(D) To protect the environment
Which of the following is an example of a government intervention in the market to promote competition?
(A) Breaking up monopolies
(B) Regulating mergers and acquisitions
(C) Prohibiting anti-competitive practices
(D) All of the above
Which of the following is a criticism of competition policy?
(A) It can lead to higher prices for consumers
(B) It can lead to job losses
(C) It can be used to protect inefficient businesses
(D) All of the above

Regulatory Policy

Which of the following is not a goal of regulatory policy?
(A) To protect consumers
(B) To protect the environment
(C) To promote economic efficiency
(D) To promote national security
Which of the following is an example of a government intervention in the market to regulate an industry?
(A) Setting safety standards
(B) Regulating pollution levels
(C) Licensing businesses
(D) All of the above
Which of the following is a criticism of regulatory policy?
(A) It can lead to higher prices for consumers
(B) It can lead to job losses
(C) It can be used to protect inefficient businesses
(D) All of the above