Power to compromise or make arrangements with creditors and members Where a compromise or arrangements is proposed- between a company and its creditors or any class or them; or between a company and its members or any class or them; the Court may, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members of class or members, as the case may be to be called, held and conducted in such manner in the court directs. The Court shall not approve of such a scheme unless it is satisfied that the Company or the applicant has disclosed to the Court all material facts relating to the company such as the latest financial position of the company, the latest auditor's report, details of any investigation pending against the company, etc.
Mergers and acquisitions have always been a topic of corporate interest in the modern times. The complexity of the laws governing these modes of corporate restructuring makes them even more intriguing and mystifying.
This chapter is a complete code in itself which contains provisions regarding all forms of compromises with creditors and arrangements with members.
Companies Billwhich seeks to replace the Companies Act ofhas brought with it tremendous changes and new requirements in almost all spheres of corporate functioning.
So is the case with compromises and arrangements. The article is structured keeping the provisions of the Existing Companies Act as the base and the provisions of the Companies Billhave been mentioned to the extent they are different from the provisions of the Existing Companies Act There is no corresponding clause to this effect in the Companies Bill The section contains that application for the Scheme can be made either by the Company, or by any creditor, or by a member or by the liquidator in case of company which is being wound up.
Companies Bill proposes to authorise the National Company Law Tribunal Hereinafter referred to as Tribunal to sanction all schemes of compromises or arrangements except in certain specific situations discussed later in this article.
Section further states that no order made Arrangements compromise reconstruction and amalgamation the Court shall be effective unless a certified copy of it is filed with the Registrar and it also requires that a copy of the order has to be annexed to every copy of the MOA issued after filing order copy with Registrar.
Companies Bill does not contain any express provision to this effect, except that Clause contains that copy of order has to be filed with Registrar within 30 days of receipt of order.
Section vis a vis Clause Section of the Companies Act, contains provisions regarding information to be furnished and the manner of furnishing the information in relation to a scheme of compromise or arrangement.
Companies Bill does not have a separate clause corresponding to Sectionbut most of the provisions of Section have been included under clause itself, with certain amendments. Section requires that where a notice calling for a meeting of the creditors or members or any class is sent to a creditor or a member, it shall be accompanied with a statement containing the terms of the compromise or arrangement and its effect and shall disclose the material interests of the directors, Managing Director or Manager in their capacity as such or as members or creditors, and the effect of those interests to the extent different from like interest of other persons.
In case the scheme affects the rights of debenture-holders, the Statement, as aforesaid, shall also include similar details of debenture trustees as is required to be given for directors.
Clause deviates from Section to the effect that from the language used in Clause it appears that notice has to be served on all creditors, members and debenture holders individually, irrespective of the kind of meeting. There is not much change in the requirement of the accompanying documents. It also stipulates a penalty provision if the requirements of the section are not complied with.
There is no corresponding express provision in Clause Notice to state that representations to be received within 30 days else it will be presumed that there are no representations to make. Section vis a vis Clause Section of the Companies Act gives power to the Court to implement a compromise or arrangement.
It contains that the Court has the power to supervise the implementation of a scheme and can make modifications in the scheme which are necessary for the purpose of its proper implementation.
It further empowers the Court to order winding up of the company where the scheme cannot be satisfactorily implemented with or without modifications. Clause is similar to Section in all respects except that the authority, as previously stated, is Tribunal and the use of language is slightly different at one or two places.
Section vis a vis Clause Section of the Companies Act contains provisions facilitating a scheme of reconstruction or amalgamation. The difference between Section and Clause is that, in Clausean attempt has been made to codify separately, the complete procedure for amalgamation and demerger of companies.
Clause opens with the provision that where an application is made to the Tribunal under Clause and if it pertains to — - a scheme of reconstruction or amalgamation, or - transfer of whole or part of an undertaking of a company transferor company to another company transferee company - demerger, then a meeting of the creditors or members, or any class of each of them may be ordered by the Tribunal, to be called, held and conducted as per the directions of the Tribunal.
It further states that in case of amalgamations and demergers, all provisions of Clause pertaining to notice requirements, majority required for approval of scheme etc. Clause does not expressly mandate this requirement. Clause is silent on this aspect.Section of the Companies Act, (‘Act’ for short) provides for compromise, arrangements and amalgamation.
This section (except sub clause (11) and (12)) came into effect from Compromises & Arrangements under Companies Act Section /Clause is the enabling section which empowers a company to contemplate a scheme of compromise or arrangement. This section talks about – Section of the Companies Act contains provisions facilitating a scheme of reconstruction or amalgamation.
CHAPTER 21 Compromises, Arrangements and Reconstructions Power to compromise or make arrangements with creditors and members (Section ) Question 1 Alpha Ltd.
and Beta Ltd. entered into a scheme of amalgamation by which Alpha Ltd. would. Compromise,reconstruction or amalgamation 1.
COMPROMISE OR ARRENGEMENTThe provisions of the Companies Act regardind a scheme of ‘Compromise’ or ‘Arrangement’ are mainly applicable to those companies which are liable to be wound up under the act [ sec(a) ]. the Tribunal for determination of any question relating to the working of the compromise or arrangement.
Procedure to be followed for merger or amalgamation of two or more small companies or between a holding. Compromise,reconstruction or amalgamation 1. COMPROMISE OR ARRENGEMENTThe provisions of the Companies Act regardind a scheme of ‘Compromise’ or ‘Arrangement’ are mainly applicable to those companies which are liable to be wound up under the act [ sec(a) ].