REVIVAL AND REHABILATION OF SICK COMPANIES
Before knowing about the revival and rehabilitation of sick companies we must know what sick companies actually are and how are they defined in the Companies Act 2013. According to the section 253 sub-section (1) of the companies act 2013, when a company fails to pay the amount on demand by the secured creditor, which could be 50% or more which the company has acquired as debt, fails to pay the full amount or the amount satisfying the secured creditor back within a period of 30 days from the notice given, then the secured creditor can file and application and reach out to the tribunal in a prescribed manner along with the relevant facts and evidences of the default of the payment by the company and if all these things are checked and justified, so for a determination the company is declared as a sick company.
According to sub-section (5) of section 253 of the companies act 2013, Even the central, state, Reserve Bank of India or any public or state level financial institution or even a scheduled bank if have sufficient reasons to believe or prove that a company has become a sick company, it could make a reference in respect of such and such company to the tribunal for the determination of certain measures which needs to be taken to be taken care of that. The Tribunal has to decide within a period of 60 days that whether a company is sick or not, provided the, the company shall be given a chance and a reasonable opportunity to reply within a period of 30 days. If the Tribunal is satisfied that a company has become a sick company, after reading and considering all the facts of the case, it has to decide and give an order in writing that whether the company would be able to make the repayments of its debts and should give a reasonable amount of time for that.
As now we know what are sick companies and how a company becomes a sick company, you must be curious that how does a sick company gets revived. For revival and rehabilitation of a sick company, the sub-section (1) of section 254 of the companies act 2013 states that either the secured creditor or the sick company has to make an application to the Tribunal for determination of the measures which are to be taken I order for the revival and rehabilitation of such company. In order to make the application for the revival and rehabilitation of the company, the application shall be accompanied by audited financial statements of the accounts of the company relating to the previous financial year. The required documents and drafts must be duly authenticated in a certain manner along with the required fees as it would have been prescribed.
The application for the revival and rehabilitation of a sick company under the sub-section (1) of section 254 of the companies act 2013 must be made to the Tribunal within a period of 60 days from the day of declaration of such company, as a sick company.
After the receipt of the application of revival and rehabilitation of a sick company, the Tribunal must fix a date which must not be later than 90 days of the receipt of the application for the hearing of the company. An appointment of an interim administration is done in order to settle the disputes and set a meeting with the creditors of the declared sick company under section 253, and the meeting must be held under 45 days of the order passed by the Tribunal on the application of the revival and rehabilitation of the sick company made under the section 254 of the companies act 2013, all the necessary drafts and required documents must be seen and carefully looked upon and the interim administration has to submit a report to the Tribunal in respect to the case within 60 days of the order passed by the Tribunal.
Incase if no drafts have been submitted by the board of directors of the declared sick company, the Tribunal may order the interim administration to take charge or control over the management of the sick company and It issues certain other directions to the interim administration in order to protect and preserve the assets of the sick company. When the interim administration has been ordered to take over the control over the management by the Tribunal of the declared sick company under section 253, the management and other staffs of the company are required to provide full support and assistance to the interim administration in order to complete the process in a smooth manner and to avoid any problem to be faced by the interim administration.
The section 257 of the companies act 2013 mandates that a committee of creditors is to be made by the interim administration consisting of not more than 7 members in order to represent each class of the creditors, and a meeting is setup with the committee of creditors in which all the necessary objectives are discussed with the committee of creditors.
After all these functions are completed and everything is done in a smooth and decent manner, the section 258 of the companies act 2013 states that the Tribunal has to fix a date on which the hearing on the matter of the revival and rehabilitation of the sick company is to be done. If the Tribunal is satisfied that the creditors representing three-fourths in value of the amount outstanding against the sick company present and voting have resolved that (a) the company could not be revived and rehabilitated, the Tribunal records the opinion of the creditors and orders the process of winding up of the company. (b) If the creditors decides that by adopting certain measures the sick company may be revived and rehabilitated, the Tribunal appoints a company administration for the company and orders it to prepare a scheme of revival and rehabilitation of the sick company.
Author: Harsh Chaudhary,
LLOYD LAW COLLEGE 1st year