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Tutorial-1 How to decide a company has become sick (Companies Act 2013).
Tutorial-1 How to decide a company has become sick (Companies Act 2013).
Just like human beings companies also fall sick. How do you know you have fallen sick ? If you feel cold or cough then you would think that you are sick. But for a company to be called as sick, a company needs to ful fill certain criteria, for instance if a company is not able to repay its debt, then it may be declared as sick company.
There was an altogether difference between the provisions of Sick company revival and rehabilitation and companies act 2013. Now both the laws have been aligned. As per companies Act 2013, The very definition of the “Sick Company” has been changed completely. Instead of previous “ net worth erosion” in the earlier act , under the companies act "inability to pay dues to creditors within 30 days of the demand itself would prove that the company has become a sick company. "
Where on demand by the secured creditors representing 50% or more of its outstanding amount of debt, if a company fails to pay the debt within a period of 30 days from the date of the notice of demand, any secured creditor may file an application to the tribunal for the determination of sickness of the company.
Means if the creditors of the company demand payment in writing from the company and the company is unable to pay the same persons within 30 days then the company may be declared sick.
The applicant (secured creditor) or company, may also make an application for:
- Determination of sickness and for the stay of any proceeding for the winding up of the company the like against any property and assets of the company or; for the appointment of a receiver in respect thereof and that no suit for the recovery of any money or for the enforcement of any security against the company shall lie or be proceeded with.
- The creditors can also request to the concerned authority to appoint a person which may sell the assets ir property of the company for repaying to the creditors.
- For the appointment of a receiver in respect thereof and that no suit for the recovery of any money or for the enforcement of any security against the company shall lie or be proceeded with.
The tribunal may pass an order which shall be operative for 120 days
However, somehow if the company becomes sick, then other significant penal provisions are Rs. 10 Lacks fine, including disqualification of such directors to be so appointed by any company in India if it is found that directors were squeezing the resources of the company in their personal favour.
