When an entrepreneur is unable to profitably grow and expand the business on a sustained basis, he/she may have to take a decision
of either restructuring its organisation or closing it. Thus, he/she may
either revive the company if it is potentially viable or ensure the closure
of an unviable unit so as to release the investments locked up in such units
for productive use elsewhere.
In order to wind up or close a business organisation, an
entrepreneur must take into account the interests of its employees, creditors,
shareholders,etc. Hence he/she must follow the basic regulatory requirements
of the country.
The most important regulation relates to sick industries
in India. Sick industries are those industries which make losses that
are more or less permanent and are not likely to be eliminated easily.
In the normal course, such units would close down or would undergo extensive
restructuring to eliminate the operations or activities that are particularly
unprofitable. To deal with such a problem, SICA or Sick
Industrial Companies (Special Provisions) Act,1985 was enacted. It
aimed to detect industrial sickness and provide for speedy remedial measures.
Hence, a quasi-judicial body called Board
for Industrial and Financial Reconstruction (BIFR) was set up which
expedited the process of revival of potentially viable units or closure
of unviable units. This Act was repealed and replaced by Sick
Industrial Companies (Special Provisions) Repeal Act,2003, which made
the whole process more transparent and simpler by setting up of National
Company Law Tribunal (NCLT) in place of BIFR.
As a part of the continuous reforms process, the Government
has been making efforts to bring more flexibility in the process of winding
up of an industrial unit through a practicable exit policy.