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FINANCIAL FEASIBILITY

What is Financial Feasibility Study & its purpose?


Start-Up Capital Requirements,
Start-Up Capital Sources, and Potential Returns for Investors

FINANCING OPTIONS
Debt Financing Equity Financing

Family an Friends
Partnership Leasing

Continued
Private Equity

Venture Capitalist
Term loans Project Finance

Initial public offering


Debentures

SICK COMPANIES ACT 1985

1) What is a 'Sick Industrial Company' Section 3(1)(o) of SICA specifies three conditions : (a) It should be an industrial company (b) It should be registered for at least five years - A company usually makes losses in initial years and hence, initial losses do not mean that the industrial company is sick. (c) At the end of financial year, accumulated losses should be equal to or more than its entire net worth.

Sick Industrial Companies Act


Sick Industrial Companies (Special Provisions) Act, 1985, as indicated by its title and introduction, was a special legislation enacted in public interest with the double objects of Securing the timely detection of sick and potentially sick companies Speedy determination and enforcement of corrective measures for such companies.

Causes for sickness of an industrial unit are


Internal factors are those which arise within an organisation.
Mismanagement in various functional areas of a company like finance, production, marketing and personnel Wrong location of a unit Overestimation of demand and wrong dividend policy Poor implementation of projects which may be due to improper planning or managerial inefficiency

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 Infrastructural problems like transport bottlenecks Situations like market recession, changes in technology,etc International pressures or circumstances, etc.

Industrial sickness may be caused by a combination of all such factors


It has several adverse consequences on the economy as a whole. Some of which may be enumerated as follows:- 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;

Major Sections of SICA 1985


CHAPTER I: PRELIMINARY
1. Short title, extent, commencement and application. 3. Definitions 4. Establishment of Board 7. Removal of members from office in certain circumstances 13. Procedure of Board and appellate authority

CONTD...
Chapter 3 [References, inquiries and schemes]
15. Reference to Board 16. Inquiry into working of sick industrial companies 17. Powers of Board to make suitable order on the completion of inquiry 19. Rehabilitation by giving financial assistance 20. Winding up of sick industrial company

CONTD...
Chapter 4 (Proceedings in case of potentially sick industrial companies, misfeasance proceedings, appeals and miscellaneous)

23. Loss of fifty per cent net worth by industrial companies 23B. Power of Board to call for periodic information 24. Misfeasance proceedings 33. Penalty for certain offences 34. Offences by companies

Abolition of Sick Industrial Companies Act

SICA Vs Companies (Amendment) Act, 2002


In the new atmosphere of liberalization and openness that has emerged during the last decade, there is a clear preference in favour of liquidation of sick industrial companies rather than rehabilitation. Some Important changes in the new Act are as follow: 1)The definition of sick industrial company has been changed. Now, if a company has accumulated losses exceeding 50% of its net worth during last four years or its fails to repay its debt to the creditors within a period of 9 months of the demand made by the letter , it will be classified as sick.

CONTD...
2)Under section 424A(1) of the amendment Act, When an industrial company falls sick, , the Board of Directors of the company is required to make a reference to NCLT and submit a scheme of revival and rehabilitation. Earlier, under Section 15 of SICA, the company was required to submit a scheme for revival. It was the responsibility of bank/financial institution to the sick baby. 3) After receiving reference under Section 424(1), The Tribunal may pass an order as to whether a company in respect of which a reference has been made has become a sick industrial company and such an order will be final. Such order can be passed without making enquiry. Earlier, under Section 16(1) of SICA, such order could be passed only after making enquiry.

CONTD...
4) Under SICA, BIFR could only recommended the winding up of the company whereas NCLT can directly order winding up.

5) The entire focus of NCLT is expected to be on speeding up the process of liquidation of sick company rather than rehabilitation.

EXAMPLES
Bengal Chemicals & Pharmaceuticals :This pioneering pharmaceutical company has been rehabilitated successfully with GOI-funds through implementation of BIFR-sanctioned scheme. GOI has since sanctioned around Rs 400 crore towards implementation of its modernization plan as well as restructuring of GOI-loans. State Government shared its revival efforts initiated by GOI and granted a soft loan of Rs 2.25 crore to enable the said sick unit to settle its past dues of sales tax.

Contd...
Gramaphone Company of India Ltd. (now, Saregama) This pioneering CD/Music cassette manufacturing works turned sick due to product obsolescence but subsequently revived itself through implementation of a BIFR-approved revival scheme with the support of State Government.

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