SICK COMPANY

SUBMITTED BY:HARJOT SINGH MBA(B&I)14058

SICK INDUSTRY
Sick industrial unit is defined as a unit or a company (having been in existence for not less than five years) which is found at the end of any financial year to have incurred accumulated losses equal to or exceeding its entire net worth. The net worth is calculated as sum total of paid up capital and free reserves of a company less the provisions and expenses, as may be prescribed. An industrial unit is also regarded as potentially sick or weak unit if at the end of any financial year, it has accumulated losses equal to or exceeding 50 per cent of its average net worth in the immediately preceding four financial years and has failed to repay debts to its creditor(s) in three consecutive quarters on demand made in writing for such repayment. The two basic factors which may result in sickness of an industrial unit are:

Internal factors are those which arise within an organisation. They include:-

Mismanagement in various functional areas of a company like finance, production, marketing and personnel;

Wrong location of a unit;

Overestimation policy;

of

demand

and

wrong

dividend

Poor implementation of projects which may be due to improper planning or managerial inefficiency;

Poor inventory management in respect of finished goods as well as inputs;

Unwarranted expansion and diversion of resources such as personal extravagances,excessive overheads, acquisition of unproductive fixed assets,etc.;

Failure to modernise the productive apparatus, change the product mix and other elements of marketing mix to suit the changing environment;

Poor labour-management relationship and associated low workers' morale and low productivity,strikes,lockouts, etc.

External factors are those which take place outside an organisation. They include:-

Energy crisis arising out of power cuts or shortage of coal or oil;

Failure to achieve optimum capacity due to shortage of raw materials as a result of production set-backs in the supply industries, poor agricultural output because of natural reasons,changes in the import conditions,etc.

Infrastructural problems like transport bottlenecks;

Credit squeeze;

Situations like technology,etc;

market

recession,

changes

in

International pressures or circumstances, etc.

CASE STUDY
NEPA Ltd: The Company is a sick unit and under Board for Industrial and Financial Reconstruction (BIFR) since May, 1998. On 23 August 2007, Cabinet approved revival of Nepa through a Joint Venture Partner in private sector by disinvestment of Government of Indias equity, preferably to the extent of 74% or 100% and introduction of Nepa Limited (Disinvestment of Ownership) Bill 2007 in the Parliament. The Bill was referred to Department related Parliamentary Standing Committee (DRPSC) for detailed examination. The Committee opined that sincere efforts should be made by the Government to revive NEPA Limited. The Nepa Limited (Disinvestment of Ownership) Bill 2007 lapsed due to dissolution of parliament. In a bid to revive the company, the Department prepared a revival plan, which was appraised and approved by the BRPSE. Accordingly, it is proposed to revive Nepa Limited through financial restructuring and fresh fund infusion. The estimated expenditure on Revival of Nepa Limited has been assessed at Rs. 362.18 crore (GoI Rs. 234.18 crore and borrowing from Bank/FI Rs. 128 crore). In addition, non-fund based assistance of Rs. 930.14 crore through waiver/conversion of GoI/GoMP loan/interest etc. The Cabinet Note is being finalized incorporating the comments of other concerned Ministries/Departments. Apart from above, the Ministry is giving continuous support to the company in the form of salary/wages and statutory dues to its employees. The Ministry has provided Rs. 27.96 crore to the company during 2011-12. Due to continuous support in the form of loan for up-gradation, the Company achieved highest ever turnover in its history during 2011-12.

Heavy Engineering Corporation Ltd. (HEC): HEC was incorporated on 31 December 1958 with the objective of achieving self-reliance in the field of design and manufacture of heavy equipments and machineries for core industries, especially the steel industry. Subsequently, HEC diversified its area of operation in the field of mining, railways and defence. The company became sick and the BIFR passed orders for its winding up in July, 2004. In fact, despite the vast infrastructure facility, the company had been incurring losses in the pastthroughout, except for the years 1976-77, 1977-78 and 1988-89, till BIFR recommended its closure. Pursuant to the appeal against the orders of BIFR, a revival package was approved by the Government in December, 2005. With the implementation of the revival package, there had been marked improvement in the performance of the company. However, to address certain other issues affecting the performance of the company, a further package was approved by the Government in September, 2008. These packages included conversion/waiver of outstanding government loans and interest, provision for bridge loan, settlement of various liabilities through transfer of land and mobilization of resources from surplus assets for CAPEX, settlement of dues, etc and government guarantee to meet working capital requirements. Under these two packages, non-cash assistance of Rs.1307.05 crore and cash assistance of Rs.60 crore was given to the company. The Government has also approved implementation of 2007 pay scales and extension of Government guarantee of Rs. 253 crore up to 31 March 2014 to ensure availability of working capital loans from banks. With the implementation of the revival package, the company has come out of sickness and is making net profits since 2006-07.