Page 137 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 7: Corporate Level Strategies

7.2.4 Liquidation Notes

Liquidation occurs when an entire company is dissolved and its assets are sold. It is a strategy of
the last resort. When there are no buyers for a business which wants to be sold, the company
may be wound up and its assets may be sold to satisfy debt obligations.
Liquidation becomes the inevitable strategy under the following circumstances:
1. When an organisation has pursued both turnaround strategy and divestiture strategy, but
failed.
2. When an organisation's only alternative is bankruptcy. A company can legally declare
bankruptcy first and then wind up the company to raise needed funds to pay debts.
3. When the shareholders of a company can minimize their losses by selling the assets of a
business.

Case Study Tracking the Turnaround of Indian Railways

t's a turnaround story that has not only amazed management experts but also caught
the attention of premier global business schools like Harvard and Wharton - the
Idramatic return to profitability for the 154-year-old Indian Railways, among the world's
largest railroad networks.
In February, when Railway Minister Lalu Prasad presented India's railway budget for the
2007-08 fiscal, its most striking aspect was the 215 billions ($4.5 billions) surplus he
announced for the organisation that employs 1.5 millions people and boasts a 63,332-
kilometer network that ferries 14 millions passengers daily in 9,000 trains (4,000 more for
cargo) from 6,947 stations.

"The railways are poised to create history," exulted Lalu Prasad, one of India's most colourful
politicians, during his 116-minute speech, referring to the highest-ever surplus - akin to
profits for companies - which the Indian Railways was projected to post for the fiscal year
ended March 31.
"This is the same railway that defaulted on the payment of dividend and whose fund
balances had dipped to 3.59 billions ($80 millions) in 2001," said the minister to the
amazement of industry honchos and experts who were listening attentively to the speech.

In fact, he not only said that the surplus would increase next fiscal but also belied speculation
over freight and upper class fare hikes that had once been a regular feature for the railways
to bridge deficits. In fact, he even announced an across-the-board cut in tariffs and rolled
out plans for 40 new trains, extended the run of 23 and increased the frequencies of 14
others.
All this only left experts gasping. They wondered what had caused such a sharp turnaround
in the organisation from being the backbone of the Indian economy to being termed a
"white elephant" headed towards bankruptcy by a government-appointed expert group.
"Today Indian Railways is on the verge of a financial crisis. To put it bluntly, the 'business
as usual, low growth' will rapidly drive it to fatal bankruptcy, and in 16 years, the
Government of India will be saddled with additional financial liability," said the report
presented in July 2001.
Contd...

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