When it comes to reviving financially distressed companies in India, the Board for Industrial and Financial Reconstruction (BIFR) plays a crucial role. In this article, we’ll explore what BIFR stands for, its history, and its current functions in the country’s financial system.
The Indian economy has seen its fair share of ups and downs over the years, with many companies facing financial difficulties due to various reasons such as poor management, economic slowdowns, and external factors like pandemics.
To address the issue of financially distressed companies, the Government of India established the Board for Industrial and Financial Reconstruction (BIFR) in 1987.
What is BIFR?
BIFR stands for the Board for Industrial and Financial Reconstruction, which is a quasi-judicial body under the Ministry of Finance, Government of India.
Its main objective is to revive financially distressed companies by providing them with a helping hand in terms of funding, restructuring, and management.
The History of BIFR
The idea of setting up a body like BIFR came about in the mid-1980s when the Indian economy was in the midst of a severe crisis.
During this time, a significant number of companies faced severe financial difficulties, leading to a rise in bankruptcies and closures.
The Indian government realized that the closure of these companies would have severe consequences for the economy, including increased unemployment and a loss of investor confidence.
To address this issue, BIFR was established in 1987 under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
How Does BIFR Work?
BIFR is a quasi-judicial body, meaning it has powers similar to a court but is not a court of law. The board comprises members with expertise in various fields such as finance, law, and management.
The primary function of BIFR is to revive financially distressed companies by providing them with funding, restructuring assistance, and management advice.
The Process of Reviving a Company through BIFR
When a company is declared sick, it can approach BIFR for help. BIFR then conducts an investigation into the company’s financial and operational status to determine the extent of the distress.
Based on its findings, BIFR develops a revival plan that outlines the steps the company needs to take to return to profitability.
The revival plan usually involves a combination of debt restructuring, capital infusion, and management changes. Once the plan is approved, BIFR monitors the company’s progress and provides it with further assistance if necessary.
Cases Handled by BIFR
Over the years, BIFR has handled numerous cases of financially distressed companies, including many large corporations.
Some of the most high-profile cases include Kingfisher Airlines, Videocon Industries, and Reliance Communications.
Criticisms of BIFR
While BIFR has been successful in reviving some companies, it has also faced criticism for its slow decision-making process and lack of transparency.
Some experts have also criticized BIFR’s role in encouraging companies to take on more debt instead of addressing the root causes of their financial distress.
The Current Status of BIFR
In 2016, the Indian government passed the Insolvency and Bankruptcy Code (IBC), which aimed to provide a more efficient and streamlined process for resolving insolvency issues.
As a result, BIFR was dissolved, and its functions were transferred to the National Company Law Tribunal (NCLT).
Under the IBC, companies facing financial distress can apply for insolvency resolution under the supervision of the NCLT.
The process involves the appointment of an insolvency professional who takes over the management of the company and works to resolve its financial issues. If a resolution plan cannot be agreed upon, the company is liquidated.
9. Conclusion
In conclusion, BIFR played a crucial role in reviving financially distressed companies in India for almost three decades. Its efforts helped to save many companies and protect the interests of their stakeholders.
However, the introduction of the IBC has led to a more streamlined and efficient process for resolving insolvency issues in the country.
FAQs
- What was the main function of BIFR?
- BIFR’s primary function was to revive financially distressed companies by providing them with funding, restructuring assistance, and management advice.
- How did BIFR work?
- BIFR would investigate a company’s financial and operational status to determine the extent of the distress, develop a revival plan, and monitor the company’s progress.
- What were some of the cases handled by BIFR?
- BIFR has handled numerous cases of financially distressed companies, including Kingfisher Airlines, Videocon Industries, and Reliance Communications.
- What was the criticism faced by BIFR?
- BIFR faced criticism for its slow decision-making process and lack of transparency, and some experts criticized its role in encouraging companies to take on more debt instead of addressing the root causes of their financial distress.
- What happened to BIFR after the introduction of the Insolvency and Bankruptcy Code (IBC)?
- BIFR was dissolved, and its functions were transferred to the National Company Law Tribunal (NCLT) under the IBC.