In this and next few post, we will discuss legal principles contained in Chapter XV of the Act.
POWER TO COMPROMISE AND ARRANGEMENT (SECTION 230):
A compromise or arrangement may be –
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them.
The Tribunal, on the application (i) of the company, or (ii) of the creditors, or (iii) of the members of the company (iv) of the liquidator of company under liquidation, may order the meeting (A) Creditors or class of creditors, or (B) of the members or class of members, (x) to be called, (y) held and (z) conducted in the manner directed by the Tribunal.
Disclosure by Affidavit:
The applicant shall disclose to the tribunal by affidavit –
(a) all material fact relating to the company;
- latest financial position of the company;
- the latest auditor’s report on the accounts of the company; and
- the pendency of any investigation or proceedings against the company;
(b) reduction of share capital of the company, if any, included in the compromise or arrangement; (clear special mention)
(c) any scheme of corporate debt restructuring consented to by not less than seventy – five percent of the secured creditors in value, including –
- a creditor’s responsibility statement in the prescribed form;
- safeguards for the protection of other secured and unsecured creditors;
- report by the auditor that the fund requirement of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board;
- Where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and
- A valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable of the company by a registered valuer.
Notice of the Meeting:
The notice for a meeting called in pursuance of an order of the Tribunal, shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture – holders of the company. The notice shall be send individually at the registered address with the company. The notice shall be accompanied by –
(a) a statement disclosing the details of the compromise or arrangement;
(b) a copy of valuation report, if any;
(c) explaining effect of the scheme on the creditors, key managerial personnel, promoters and non – promoters members and debenture – holders;
(d) explaining effect of the scheme on any material interests of the directors of the company or the debenture trustees; and
(e) such other prescribed matters.
The notice shall also be placed on the website of the company. In case of a listed company, the notice shall also be sent to the Securities and Exchange Boards of India and stock exchanges for placing on their web – site. The Notice shall also be published in newspapers.
Any advertisement of or about the notice, shall indicate the time within which compromise or arrangement shall be made available to concerned person free of charge from the registered office of the company.
The notice shall provide that the person to whom the notice is sent, may vote in the meeting either themselves or through proxies or by postal ballot to the adoption of the compromise or arrangement within one month from the date of receipt of the notice.
A notice along with all the documents shall also be sent to –
(a) The Central Government;
(b) The Income – tax authorities;
(c) The Reserve Bank of India;
(d) The Securities and Exchange Board of India;
(e) The Registrar;
(f) The stock exchanges;
(g) The Official Liquidator;
(h) The Competition Commission of India, is necessary; and
(i) Such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement (I hope, this means something which may falls in whose sectoral territory is going to be affected).
These authorities shall require to made representation within a period of thirty days from the date of such notice. If these authorities fail to represent within this period, it is presumed that they have no representations to make on the proposals.
Objection to the Compromise or Arrangement:
Any Objection to the compromise or arrangement shall be made only by person holding not less than ten percent of the shareholdings or having outstanding debt amounting to not less than five percent of the total outstanding debt as per the latest audited financial statement.
This means all other person has only two option: yes or no.
Effect of the Scheme:
Where (i) majority of persons representing three – fourth in value of the creditors or class of creditors or members or class of members agree to compromise or arrangement and (ii) sanctioned by the Tribunal by an order; the scheme shall be binding on the company; all creditors or class of creditors or members or class of members or in case of a company being wound up, on the liquidator and the contributories of the company.
An order made by the Tribunal shall provide for all or any of the following matters, namely –
(a) Where the compromise or arrangement provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable;
(b) The protection of any class of creditors;
(c) The variation of the shareholders rights given effect under the provision of Section 48;
(d) If the compromise or arrangement is agreed to by the creditors, any proceedings pending under SICA shall abate;
(e) Such other matters including exit offer to dissenting shareholders as to the opinion of the Tribunal necessary.
No compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company’s auditor has be filed with the Tribunal to the effect that the accounting treatment is in conformity with the accounting standards.
Filing of Order:
The order of the Tribunal shall be filed with the Registrar by the company within a period of thirty days of the receipt of the order.
Dispense with the Meeting:
The Tribunal may dispense with calling of a meeting of creditors or class of creditors where at least ninety percent value, agree and confirm by way of affidavit to the scheme of compromise or arrangement.
Buyback under Compromise or Arrangement:
Any buyback of securities under scheme shall be in accordance with the provision of Section 68 other the Tribunal shall not sanction the scheme of compromise or arrangement.
Takeover under Compromise or Arrangement:
Any takeover under the scheme of compromise and arrangement shall confirm the Rules, in case of unlisted companies and SEBI Regulations in case of listed companies.
Any aggrieved party may make application to the Tribunal with respect of takeover offer of the unlisted companies and the Tribunal may on application pass such order as it may deem fit.
Reduction of Capital under Compromise or Arrangement:
The provision of Section 66 shall not apply in case of reduction of share capital affected in pursuance of the order of the Tribunal for compromise or arrangement.
POWER OF TRIBUNAL TO ENFORCE COMPROMISE OR ARRANGEMENT (SECTION 231):
The Tribunal –
(a) Shall have power to supervise the implementation of the compromise or arrangement; and
(b) May give such directions or make modification as may consider necessary for implementation of the compromise or arrangement.
Where the Tribunal is satisfied that the compromise or arrangement cannot implement satisfactorily with or without modifications and the company is unable to pay its debt as per scheme, it may order for winding up the company and such order as may deem fit.
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