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Sunday, March 9, 2014

Just as the economic slowdown is taking its toll on big corporates, small and medium sized enterprises are facing the heat as well. Indeed, for some of the smaller companies the impact of the slowdown has been so adverse that they have been forced to apply for sick status. This is so that they can protect themselves from creditors in case there is liquidation. This is something that is reflected in the statistics as well. As reported in Mint, 2013 saw the highest number of companies registering with the Board for Industrial and Financial Reconstruction (BIFR) for "sick" status since 2006. A total of 92 companies registered with BIFR in 2013, compared to 118 in 2006. These companies include both listed and unlisted entities. Many of these small companies are suppliers to their bigger counterparts. So when the big companies delay in making payments, the working capital requirements of these smaller firms increase piling on the pressure on them. Moreover, smaller companies also face hurdles in terms of securing funding from banks or when it comes to debt restructuring. Thus, unless the economy picks up, we may see more of these instances in the coming months as well.

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