Closure Of Business Unit

Closure Of Business Unit

According to Gover “Winding up of a company is the process whereby its life is ended and the property administered for the benefit of creditors and members.”

Closing down a business unit means taking extreme step when all other ways to continue the unit stops supporting the entrepreneur. It is the last resort and perhaps the most unwanted resort to any entrepreneur. Although it is a very harsh decision leading to serious consequences, such decision is very necessary and should be taken without unnecessary delay. Closure of a business unit is the outcome of industrial sickness and is followed by industrial sickness most of the time.  When all efforts to reorganize the enterprise into a viable unit are not fruitful, closure is the right choice. Adopting the closure step is like giving mercy death to a patient whose recovery chances are nil.

The stage of closure of unit is followed by following stages:

• Uneconomic working of business unit.
• Incurring losses year after year
• Facing industrial sickness
• Closure of business unit

Characteristics of closure of a business unit

• Closure is the outcome of many consequences
  • Industrial unit which is sick for longer period of time
  • A unit making losses year after year
  • It is not advisable economically to continue the unit
• Leads to serious consequences
  • Unemployment
  • Further recession in other industries
  • Loss of money on part of shareholders, financial institutions etc
• Time consuming and complicated procedure
  • Follow the legal provisions incorporated under Indian companies act 1956
• Similar to mercy killing to a person

Why end a business unit?

• Increased cost of production
• Increased labor cost
• End of product life cycle
• Choosing wrong / faulty location
• Using outdated technology
• Industrial recession & sickness
• Financial crisis
• Changes in the government policies
• When turnaround is not at all possible.

CONSEQUENCES OF CLOSURE

Effects on Employees:

1. Immediate Unemployment
2. Consequences due to unemployment
3. Psychological impact

Effects on corporate sector:

1. Reduction in the prices of shares
2. Impact on other corporate sector in terms of shortage of funds to them
3. Financial difficulties to new corporate

Effects of closure on financial institutions

1. Financial loss to the financial institutions
2. One more add on to their defaulter’s list