Revival and Rehabilitation of Sick Companies

The Ministry of Corporate Affairs has formulated the framework for Revival and Rehabilitation of Sick Companies under the Companies Act. This framework intends to timely detect the sickness and take appropriate measures for revival of sick companies. In this article, we look at the Revival and Rehabilitation of Sick Companies in detail. Also, read about Andhra Pradesh Small Scale Industries Revival Scheme

Objectives

The objectives of the Revival and Rehabilitation of Sick Companies are listed below:

To enable sick companies to seek relief and concession to revive over difficult financial times.
To assess the economic viability of sick companies and rehabilitate them.

Determination of Sickness of Company

The company is assessed to be sick on demand by the creditors of a company representing 50% of the amount of debt under the following circumstances:

Any company has failed to pay the debt within 30 days from the issuance of notice by the creditors.
Any company has failed to secure the debt received from the creditors.

Overview of the Process

Once the company is determined to be a sick company, the application can be filed by the creditors to the tribunal in the prescribed format. The tribunal would make decisions within 60 days from the date of submission of application. Once the tribunal is satisfied on that a company has turned a sick company, and it is in the state to repay its debts, within a specified time, then the order from the tribunal to the company is made to repay its debts.

Application for Revival and Rehabilitation

Any companies determined as the sick company can make an application in the prescribed format to the tribunal in order to take necessary steps to be taken for its revival and rehabilitation and the application has to be accompanied by the following documents:

Audited financial statements of the sick company relating to the immediately preceding financial year.
The draft of the scheme for revival and rehabilitation of the company in the prescribed format.
The above-mentioned documents and particulars have to be duly authenticated in such manner, along with such fees as prescribed.

Note: The application has to made to the tribunal within 60 days from the date of identification of the company as a sick company by the tribunal under the Companies Act, 2013.

Appointment of Interim Administrator

Upon submission of application, the tribunal would fix a date of hearing and appoint an interim administrator who should appoint a meeting with creditors of the company within 45 days and prepare a draft of the scheme for revival and present it before the tribunal within sixty days from the meeting. In case of no draft, the scheme is provided, then the tribunal would assist the interim administrator in taking over the management of the business. The full assistance in coordinating the interim administrator would be provided by the Director or Management of the company.

Committee of Creditors

The interim administrator will appoint a committee of creditors such number of creditors would not exceed seven, and these members should be present in all the meetings, and the interim administrator would direct all the directors, promoters, key managerial personnel of the company to attend the meeting and furnish the information whichever is required and necessary.

Order of Tribunal

If the tribunal has approved the report passed by the interim administrator stating that it is not likely to revive and rehabilitate the sick company, then the tribunal would take the following steps:

In case of the revival and rehabilitation of the sick company is not possible, the tribunal would order that the proceedings for the winding up of the company to initiate.
In case of revival and rehabilitation of the sick company is possible, the tribunal would appoint a company administrator for the company to prepare a scheme for revival and rehabilitation of a company by adopting certain measures.

Scheme of Revival and Rehabilitation

A revival and rehabilitation of sick industries scheme will be prepared by the company administrator which includes measures like proper management of the sick company, financial reconstruction of the sick company, lease or sale of a part of any assets, amalgamation of the sick company with another company or another company with the sick company, takeover of the sick company by solvent company, rationalization of managerial personnel.

Sanction of the Scheme

The scheme prepared by the management of the company should be placed before the creditors of the sick company in a meeting for their approval within the period of 60 days. If the scheme is approved by the secured creditors and then it would be examined by the tribunal and copy of the scheme draft with modifications made by the tribunal would be forwarded to the sick company for the suggestion. Then the tribunal would pass the order within 60 days sanctioning the scheme on receipt of the scheme.

Winding up of a Company

If the revival and rehabilitation scheme is not sanctioned by the secured creditors and the administrator has to present the report within 15 days stating the same, and the tribunal would order for the winding up of the company. To know more about winding up of the company click here

Rehabilitation and Insolvency Fund

A fund which is known as the Rehabilitation and Insolvency Fund will be allocated for the purposes of revival, rehabilitation, and liquidation of the sick companies.

Penalty

In case of providing a false statement or violating any order made the tribunal or the appellate tribunal would be punishable with imprisonment for a term of seven-year or more along with a fine of Rs.1 lakh.