Group Members Roll Numbers

Krutika Likhite 2012090

Subodh Mayekar

2012097

Siddharth Narang

2012108

Bhavik Parekh

2012116

Ashwin Paul

2012117

Vinit Paul

2012118

The companies Act defines a Sick Company as one:

Which has accumulated losses in any financial year equal to 50 percent or more of its average net worth during four years immediately preceding the

financial year in question,

or

Which has failed to repay its debts within any three consecutive quarters on demand for repayment by its creditors

 Internal factors are those which arise within an organisation

1. Mismanagement in various functional areas of a company like

finance, production, marketing and personnel;

2. 3. Wrong location of a unit; Overestimation of demand and wrong dividend policy;

4.

Poor implementation of projects which may be due to improper

planning or managerial inefficiency;

5.

Poor inventory management in respect of finished goods as well as

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

assets,etc.;
7. Failure to modernise the productive apparatus, change the product mix and other elements of marketing mix to suit the changing environment; 8. 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

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

2.

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.
3. 4. Infrastructural problems like transport bottlenecks; Credit squeeze;

5.
6.

Situations like market recession, changes in technology,etc;

International pressures or circumstances, etc.

Delay or default in payment to suppliers Irregularity in bank A/C Delay or default in payment to banks & FI Non-submission of information to banks & FI Frequent requests to banks & FI for additional credit Decline in capacity utilization Poor maintenance of plant & machinery

Low turnover of assets Accumulation of inventories Inability to take trade discount Excessive turnover of personnel Extension of accounting period Resort to creative accounting which seeks to present a better financial picture than what it really is Decline in the price of equity shares & debentures

 Ratio analysis the analyst should see whether the three important parameter viz. Cash position, net working capital ,& net worth of the company are positive If not they should monitor the following cash flow related variables & improve overall position of the company The cash flow represents the Earnings Before Depreciation, Amortization and Deferred Taxes

EBDT to Total Assets EBDT to Total Liabilities EBDT to Net Sales EBDT to Net Worth EBDT to current Assets EBDT to Current Liabilities EBDT to Total capital

Symptoms

Accounting ratio to be used

Low capacity utilisation Falling demand for the product in the market Inability to pay interest Borrowing for short term & investing in long term Large inventory accumulation in anticipation of rise in price Inefficient collection of debtors Liquidity crises Increase in average credit period to maintain sales in view of falling demand

Actual hours / budgeted a hours or fixed assets turnover ratio Finished goods turnover ratio Interest coverage ratio Current ratio to fixed assets to long term loan ratio Inventory turnover ratio Debtors turnover ratio Current ratio ,quick ratio Average collection period , debtors turnover ratio

It leads to loss of substantial revenue to the Government and enhances its public

expenditure
It locks up necessary resources and funds in the sick unit. This also increases the non-performing assets (NPAs) of banks and financial institutions

It leads to loss of production and productivity in the economy

It aggravates the problem of unemployment in the economy It vitiates the industrial atmosphere and leads to worker-management

disputes,strikes,lock-outs,etc It undermines the public confidence in the functioning of the organised sector in the country which in turn affects the overall investment climate of the economy.

 In the light of above growing sick units in terms of size, region and industry, government took many steps to tackle this problem. The most important piece of legislation dealing with industrial sickness was the Sick Industrial Companies (Special Provisions) Act,1985 (SICA). It applies to industrial undertakings both in the public and private sectors. The basic rationale of enacting SICA was to determine sickness in the industrial units It also aimed at expediting the revival of potentially viable units

Settlement with creditors Provision of additional capital Divestment & disposal Reformulation of product market strategy Modernization of plant & machinery Reduction in manpower Strict control over costs

 Streamlining of operations Improvement in managerial systems

Environmental monitoring Organizational structure Responsibility accounting Management information system Budgetary control

Workers participation Change of management

 Companies that have difficulty in servicing their debt resort . Debt restructuring primarily focused on the reducing the burden of debt. Common elements in debt restructuring. Interest rate relief Deferment of past interest dues Wavier of penalties Reschedulement of the loan repayment Reduction in loan amount

 Board of industrial and Financial Reconstruction (BIFR) was established by the Central Government, under section 3 of the Sick Industrial Companies (Special provisions) Act, 1985 and it became fully operational in May, 1987. BIFR deals with issues like revival and rehabilitation on sick companies, winding up of sick companies, institutional finance to sick companies, amalgamation of companies etc. BIFR is a quasi judicial body

 The role of BIFR as envisaged in the SICA (Sick Industrial Companies Act) is: (a) Securing the timely detection of sick and potentially sick companies (b) Speedy determination by a group of experts of the various measures to be taken in respect of the sick company (c) Expeditious enforcement of such measures BIFR has a chairman and may have a maximum of 14 members, drawn from various fields including banking, labour, accountancy, economics etc. It functions like a court and has constituted four benches.

 Timely detection of sick and potentially sick companies. Speedy determination by a body of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies. The expeditious enforcement of the measures so determined and for all matters connected therewith or incidental thereto. It provided for the constitution of two quasi-judicial bodies, that is, Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR)

 The Board of Directors of a sick industrial company is required, by law, to report the sickness to the BIFR within 60 days of finalisation of audited accounts, for the financial year at the end of which the company has become sick

 When a case is referred to the BIFR, it is verified by the Registrar of the BIFR as to whether the facts of the case falls within the provisions of the Sick Industrial (Special provisions) Act, 1985. If so, the BIFR accepts the case and notifies a date for hearing the case. For rehabilitating a sick unit, cooperation of various connected agencies is a must.

 After the hearing, the BIFR itself may conduct a study or entrust the work to an operating agency appointed by it to determine whether the company is in fact sick. The enquiry is to be completed within 60 days. On completion of the enquiry, the BIFR will declare whether the company is sick or not

 Once a company has been found sick, the BIFR may grant time to the sick company to enable it to make its net worth positive and bring the company out of sickness, without any external financial assistance If it is found infeasible for company to make its networth positive with out any external financial assistance, or if the BIFR decides that the company can not make its networth positive Within a reasonable time, the BIFR will direct the operating agency to prepare a suitable revival package for the restoration of the health of the company.

 The operating agency prepares a suitable revival package. The revival package may vary from case to case depending on the nature of the problem and may include additional financial assistance, postponement of recovery of loan already lent by banks and financial institutions, change in management, amalgamation, sale of redundant assets, lease of assets or any other suitable measure. The revival package should be submitted to the BIFR within a time limit of 90 days or such extended period as may be granted by the BIFR.

 When the revival package as finalized by the BIFR contains further financial assistance or reliefs, concessions, sacrifices etc. (for example, sanctioning of additional financial assistance for the purchase of certain balancing equipments, waiving of penal interest/compound interest charged, waiving of interest in part or full, waiver from sales tax etc.) the scheme will be circulated to the concerned agencies for their consent to be received within a period of 60 days

 Nicco Corporation Limited(NCL) is the flagship company of the Nicco Group For nearly over 6 decades, NCL has been one of the pioneers in cable manufacturing industry It produces a wide range of power, control, instrumentation & telecom cables & provides a spectrum of engineering services & executes turnkey projects Established in 1942, the US$ 67 million Nicco Group is a widely respected Indian industrial powerhouse

Aircraft & Air Field Cables Fire Retardant Low Smoke Cables (FRLS) Automobile Cables Oil Rig Cables Copper Conductors Cables For Cranes Elevator Cables (lift Cables) Furnace & High Temperature Cables Marine Cable Power Cables

 NICCO BATTARIES LTD(NBL) amalgamated with NICCO Corporation LTD (NCL) with effect from 1 April 1994 as per amalgamation scheme In amalgamation scheme entire undertaking of NBL shall be transferred to NCL & transferee company i.e. NCL shall issue & allot shareholder of NBL share in transferor company in proportion of 2 share of face value of Rs.10 each of the transferee company for 13 equity share of face value Rs.10 The rehabilitation Cum amalgamation scheme envisages settlement of dues of the bank & institution, payment to pressing creditors besides capital expenditure of Rs 163 lakhs

Cost of the scheme Capital expenditure Settlement of dues of the banks Payment of unsecured loans from Payment of pressing creditors Margin money for working capita TOTAL Means of finance Promoters contribution out of internal accruals of NCL Benefit under section 72 A of IT Act,1961 TOTAL

(Rs in lakhs) 163.00 619.00 20.00 18.00 57.00 877.00 (Rs in lakhs) 477.00 400.00 877.00

 The scheme for amalgamation of NBL, with NCL was under section 72A of the IT Act,1961 and shall be effective from 1 April ,1994 The carried forward accumulated loss of NBL is estimated at Rs 1896 lakhs as on 31 March 1994 The estimated tax set off at the current rates of IT Act , 1961 is restricted to Rs. 400 lakhs

Synergistic operating economies Diversification Taxation advantages Growth advantage Managerial motivate Acquisition of specific asset

 Dilution of competition in the market Actual or a potential competitor, may get eliminated Efficient & growing medium or small-sized undertaking May exercise a market power to the detriment of its customers & suppliers