REVIVAL AND REHABILITATION OF SICK COMPANIES

In last post, we discussed sick companies. Now, we will discuss revival and rehabilitation.

SCHEME OF REVIVAL AND REHABILITATION (SECTION 261):

The company administrator shall prepare or cause to be prepared a scheme of revival and rehabilitation of the sick company after considering the draft scheme filed along with the application under Section 254.

The scheme may provide any one or more of following measures, namely –

      i.        the financial reconstruction of the sick company;

     ii.        the proper management of the sick company by any change in, or by taking over, the management of such company;

    iii.        the amalgamation of –

1. the sick company with any other company; or
2. any other company with the sick company;

   iv.        takeover of a part or whole of my asset or business of the sick company;

    v.        the sale or release of a part or whole of any asset or business of the sick company;

   vi.        the rationalisation of managerial personnel, supervisory staff and workmen in accordance with law;

  vii.        such other appropriate preventive, ameliorative and remedial measures;

 viii.        repayment or rescheduling or restructuring of the debts or obligations of the sick company to any of its creditors or class of creditors;

   ix.        such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purpose of the measures specified in above clauses.

SANCTION OF SCHEME (SECTION 262):

The scheme prepared by the company administrator shall be place before the creditors of the company in a meeting for their approval within the period sixty days from his appointment. This period of sixty days may be extended up to one hundred twenty days.

Approval in Meetings:

The company administrator shall separate meetings of secured and unsecured creditors. If the scheme is approved by (a) unsecured creditors representing one – forth in value of the amount owed by the company and (b) secured creditors representing three – forth in value of the amount outstanding against financial assistance disbursed to the company; the company administrator shall submit the Tribunal for sanctioning the scheme.

Where the scheme relates to amalgamation of the sick company with any other company, the scheme shall also be approved by a special resolution in general meetings by shareholders of both companies. Only after this approval, the scheme shall be proceeded with.

Examination by Tribunal:

The scheme prepared by the company administrator shall be examined by the Tribunal. If, there is any modification, the Tribunal shall send the draft to the sick company and the company administrator. In case of amalgamation, the scheme shall also be sent to other company under the amalgamation. The Tribunal may publish or cause to be published the draft scheme in brief in daily newspapers for suggestions and objections.

The complete draft scheme shall be kept at the place where registered office of the company is situated or at a place mentioned in the advertisement.

In light of suggestions and objections received, the Tribunal may make such modifications as it may consider necessary. The sick company, company administrator, amalgamating company, and any shareholder or creditor or employee of these companies may submit suggestions and objections.

Approved Scheme:

After satisfying that the scheme had been validly approved, the Tribunal shall within sixty days from the receipt of the scheme, pass an order sanctioning such scheme. Yes, this is practically a challenge for all parties concerned.

The sanction accorded by the Tribunal shall be conclusive evidence that all the requirements of the scheme relating to the reconstruction or amalgamation or any other measure specified therein have been complied with. A copy of the sanctioned scheme certified in writing by an officer of the Tribunal to be a true copy thereof shall in all legal proceedings be admitted as evidence.

A copy of the sanctioned scheme shall be filed with the Registrar by the sick company within a period of thirty days from the date of receipt of a copy thereof.

Properties and Liabilities:

Where a sanctioned scheme provides for the transfer of any property or liability of the sick company to any other company or person or where the scheme provides for the transfer of any property or liability of any other company or person in favour of the sick company, then, by virtue of, and to the extent provided in, the scheme, on and from the date of coming into operation of the sanctioned scheme or any provision thereof, the property shall be transferred to, and vest in, and the liability shall become the liability of, such other company or person or, as the case may be, the sick company.

Review of Scheme:

The Tribunal may review any sanctioned scheme and make such modifications, as it may deem fit, or may by order in writing direct company administrator, to prepare a fresh scheme providing for such measures as the company administrator may consider necessary.

WINDING UP OF COMPANY ON REPORT OF COMPANY ADMINISTRATOR (SECTION 265):

If the scheme is not approved by the creditors, the company administrator shall submit a report to the Tribunal within fifteen days and the Tribunal shall order for winding up of the sick company and conduct the proceeding with the provision of Chapter XX of the Companies Act, 2013.

SCHEME TO BE BINDING (SECTION 263):

On and from the date of the coming into operation of the sanctioned scheme, the scheme shall be binding on the sick company, transferee company or such other company and also on employees, shareholders, creditors and guarantors of said companies.

IMPLEMENTATION OF SCHEME (SECTION 265):

The Tribunal shall, for the purpose of effective implementation of the scheme, have power to enforce, modify or terminate any contract or agreement or any obligation pursuant to such agreement or contract entered into by the company with any other person.

The tribunal may by order in writing authorise the company administrator to implement a sanctioned scheme till its successful implementation. The Tribunal may require company administrator to file period reports on implementation of the sanctioned scheme.

Where the whole or substantial assets of the understanding of the sick company are sold under a sanctioned scheme, the sale proceeds shall be applied towards implementation of the scheme in a manner as directed by the Tribunal. The debtors and creditors shall have the power to scrutinise and make appeal for review of the value before final order of fixing value.

Where it is difficult to implement the scheme for any reason or the scheme fails due to non – implementation of obligations under the scheme by the parties concerned, the company administrator may make an application before the Tribunal for (a) modification of the scheme or (b) to declare the scheme as failed and that the company may be wound up. Where there is no company administrator; the company, secured creditors or transferee company may make the application.

The Tribunal shall pass an order within thirty days of presentation of the application with the consent of secured creditors holding three – fourths in value of secured credit.

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