Company Compromise

What are the Provisions of Compromise and Arrangement for Small Companies/Private Companies

A Scheme of compromise in a company with stakeholding of general public (in a public company) or by few individuals privately (in a private company), is held between the creditors of the company and the company or between the members of the company with the company. Where an Arrangement proposal is made, it is proposed for re-organization of the company structure with a view to restructuring company ownership, to merge any another public or private company, to undertake division of existing shares, issue new class of shares or covert existing shareholdings to some other form or class of shares.

Section 230 to 232 of the Companies Act, 2013 prescribes rules applicable in the state of Compromise and Arrangement for Companies. Section states for application of compromise or arrangement to be made to the Tribunal by the company or, creditors of the company or member of the company or by the liquidator appointed in case of dissolution practice with directions of a tribunal or other authorities.

In this post, you’ll get to know all provisions which become applicable to give the effect a scheme of Compromise or Arrangement with a Private Company.

Provisions Applicable to Private Companies for Compromise and Arrangement Schemes

  • An application defining the scheme of compromise or arrangement with creditors or members of the company is to be submitted by the company/member of the company/creditor of the company or by the liquidator appointed for dissolution of the company to the Tribunal. If the application requires the involvement of more than one company then the application should be a joint application at the discretion of all members and companies involved in the scheme.
  • If the company is not the applicant then “ Notice of Admission “ (Form NCLT – 1 ) and the Affidavit (Form NCLT – 6) shall have to be first served to the company within 14 days before the date fixed for hearing of the notice by the Tribunal.
  • The application shall also disclose the basis on which each member of the company or creditors has been identified who has approved the scheme.
  • A meeting of all members is to be held as per directions of the tribunal on confirmation of receipt of application.
  • For meetings held on directions of Tribunal, a notice for the meeting is to be served to Tribunal and to all members individually.
  • The notice should be inclusive of the particulars of company/companies involved in the scheme, members, creditors, and all respective persons involved, explanatory statements of the scheme.
  • An advertisement for a meeting to be held is to be advertised or published in at least one English newspaper or as per directions of the tribunal.
  • A notice prescribing the scheme of Compromise or Arrangement is to be sent to the Central Government, RBI, Registrar, Competition Commission of India, or other authorities as applicable.
  • All members/creditors receiving the notice of the meeting shall vote in the meeting for the scheme proposal. Voting shall be considered ethical if duly signed by persons attending, no proxy shall be allowed for minor and proxy for the disabled shall be permitted as the case may be.
  • The remarks of the meeting and an affidavit for compliance of the advertisement requirement of the Scheme have to be sent to Tribunal.
  • With the acceptance of remarks by all members or by a majority , a petition (Form CAA -5) is filed shall have to be filed with the Tribunal and the Registrar for approval of the Scheme.
  • order under Section 232 is issued for implementation of the Scheme.

Recent Amendments Announced for Company Compromise and Arrangement Rules;

With effect from notification dated 3rd February 2020, the following inclusions were made to Company Compromise and Arrangement Rules, 2016.

  • Application made to the Tribunal for Arrangement of a Takeover as per Section 230, should also include an application from the member – who with any other member in the company holds not less than three fourth share of the company and the takeover application is made to acquire a full right over the company.
  • Application for Arrangement of Takeover shall also include a report of the registered valuer for valuation of shares proposed to be taken by the member or person and details of the bank account opened for the Scheme.
  • In Schedule of fees for S.No. 1 the fee for Application for Compromise, Arrangement and Amalgamation has been prescribed to be charged Rs 5000/- (Section 230(1)).

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