This case suggests the scheme of arrangement has been recognized as an important intermediate tool for revival of a company prior to liquidation even in cases that do not proceed through an insolvency process under the IBC. Save my name, email, and website in this browser for the next time I comment. What is a Section 110 Scheme of Arrangement? It is pertinent to state here that, Section 230 of the CA, 2013 does not restrict promoters from proposing a scheme of arrangement. In fact, as far back as in the Indian Companies Act, 1913, section 153 pertaining to compromise or arrangement defines the word “company”, relevant to this section, as a company “liable to be wound up under this Act”. A scheme under Section 230 can be filed by the liquidator, a creditor (or class of creditors), or a member (or class of members). Schemes of Arrangement A scheme of arrangement is an arrangement or ‘compromise’ proposed by a company, creditor, member, liquidator or administrator under Part 26 of the CA 2006. In the absence of a voluntary agreement between the company and all of its creditors, a company in Hong Kong only has recourse to a scheme of arrangement or a provisional liquidation. Unless the NCLT dismisses the application in the very first hearing, the issue is – while the meetings of creditors and shareholders are being called, will the process of liquidation be stayed? Scheme of arrangement: general principles A scheme of arrangement is a mechanism by which a company may enter into a compromise or arrangement with its members or creditors. Overview of the insolvency reforms made by the Companies Act 2016 . The structure of the Code seems to be exclude shareholders’ participation in resolution schemes, on the understanding that commencement of insolvency passes control from shareholders to the creditors. The contributors do not endorse these sites, or opinions they may offer. Pursuant to Section 230 of the CA, 2013, a scheme of arrangement can be proposed by a liquidator. In the case of Jindal Steel and Power Limited vs. Arun Kumar Jagatramka & Gujarat NRE Coke Limited[2], the NCLAT has held that when a scheme of arrangement is maintainable as per Section 230 of the CA, 2013 for the companies which are undergoing liquidation, the same shall not be maintainable when proposed by a person ineligible under Section 29A of IBC. Pursuant to Section 230 of the CA, 2013, a scheme of arrangement can be proposed by a creditor or member or a liquidator including one who has been appointed under the IBC. Hyderabad – 500016, Telangana, India. In any case, the scheme of arrangement has the supermajority vote, not only of the shareholders, but also each of class of creditors. Corporate Secretarial and Corporate Governance. 5 For example, schemes need only be proposed with creditors whose rights are affected. Therefore, creditors of small value and small shareholders also wield the power to hold back the consent of larger creditors and shareholders. The scheme of arrangement procedure in the Companies Act 2016 imposes two key improvements to prevent the abuse of the moratorium provisions : limiting the maximum duration for a restraining order to 3 months with extensions of up to a further 6 months only and +91 9553688330 Samiti, State Bank of India and others v. Altstom Power Boilers, Miheer N Mafatlal v Mafatlal Industries Limited, Forbes and Company and another v. Official Liquidator, Relief Defendants in Recovery Proceedings: Implications of the Dave Committee’s Suggestion, German Court’s Antitrust Decision Rules against Data Collection by Facebook, Decoding the Myths of Asset Value Maximisation in Insolvency, A Banker’s Tax: Accepting the Inevitability of Bailouts and Enhancing Government Response, Employee’s Right to Sue after Obtaining Full and Final Settlement from Employer, Supreme Court Rules on Mandatory Procedure under the SARFAESI Act. Naik, (1967) 37 Com Cases 656, that the provision was meant only for a company on the brink of bankruptcy. 221 of 2018; order dated 24/10/2019. A scheme is particularly useful because it allows for the offeror to use the target company to negotiate with its shareholders collectively and then bind them 2. Section 390 of the erstwhile Companies Act, 1956 which has now been replaced by Section 230 of the Companies Act, 2013 (“CA, 2013”), lays down that a scheme of arrangement can be proposed by a liquidator of a company, undergoing liquidation by filing an application before the National Company Law Tribunal (“NCLT”), to seek sanction for a scheme of arrangement. There are several significant differences between schemes of arrangement under corporate laws and resolution procedures under the Code. A scheme of arrangement must be approved by the court. When a solvent company chooses to enter liquidation, this is done through a process known as a Members’ Voluntary Liquidation (MVL).This may be done if the directors want to move on from the business, perhaps through retirement or … Cork Gully LLP Scheme of Arrangement guidance notes 3 4 Scheme Procedure Scheme Procedure assets were that company to be wound up – and who will be affected by the proposed scheme (“Scheme Creditors”). The principles for stay of winding up proceedings were contained in section 466 of the Companies Act, 1956 – this provision, and several English and Indian authorities on this regard has been discussed at length in Forbes and Company and another v. Official Liquidator (2013). The opinions expressed herein are those of the contributors (which shall, for these purposes, include guests) in their personal capacity and do not, in any way or manner, reflect the views of the organizations that the contributors are presently associated with, or that have previously employed or retained the contributors. ... LDK Solar and Suntech schemes of arrangement. It may be noted that the need for approval by both shareholders and creditors depends on whether the arrangement involves the interests of shareholders as well as creditors (note the words in section 230 “as the case may be”). •exit to Administration, if the Administrator felt In more detail A Section 110 Scheme of Arrangement is a very useful way of splitting up a company between types of trade or classes of shareholders . Insolvency is not required, and a scheme of arrangement can be used in other scenarios, for example, for the reduction of share capital. Presumably, the mechanics may be for a substantial shareholder block proposing the liquidator to put a scheme before the NCLT. Introduction Of the former English colonies in Asia, Singapore’s corporate insolvency law is one of the closest to the English. LIQUIDATION AND SCHEME OF ARRANGEMENT: Liquidation proceedings, with the course of time, are now evolving into restructuring proceedings by taking recourse under Section 230 of CA, 2013 for the purpose of restructuring and revival of the company, even at the liquidation stage. a Scheme of Arrangement and the need to make court applications and convene creditors meetings for its approval the Company will need to need to appoint legal and financial advisers. Authors: Prashant Jain, Co-Founder & Partner; Anita Dugar, Senior Associate; Kriti Sanghi, Associate. The scheme may be proposed by shareholders, or creditors, or the liquidator himself. It appears that when the Code was being written, the overlap of section 230 was not clearly visible, even though section 230 as amended by the Code itself makes a reference to liquidator appointed under the Code. When approved by the NCLT, the scheme binds the company, its members and its creditors. A. Generally speaking, secured creditors, preferential creditors and unsecured creditors will form different classes. However, a scheme of arrangement implemented outside of a Cayman Islands liquidation would not have the benefit of the automatic stay from unsecured claims that a provisional or official liquidation can offer. The scheme may be proposed by shareholders, or creditors, or the liquidator himself. (2) Companies subject to English and Australian Schemes of Arrangement (dual run-off and estimation schemes) (All in liquidation in Australia and Provisional Liquidation in England) Creditors, of course, may propose the same directly to the NCLT. Statutory procedures such as provisional liquidation and schemes of arrangement can also be used to help implement a restructuring proposal. Or, if the promoters, disqualified from either heading a resolution exercise or acquiring assets in liquidation, can find a surrogate route in schemes of arrangement, is there a potential of negating the very objective of insertion of section 29A? Third, it is important to note that section 230 requires consent of every “class of creditors”. Additionally, requirements imposed by the Securities and Exchange Board of India (SEBI) in case of listed entities have put several additional safeguards, including mandatory facility of e-voting in such meetings, and a separate recognition of votes of “independent shareholders” (see Annex I Para I(A) point 9 of SEBI Circular dated 10 March 2017). The ruling of the Bombay High Court in Khandelwal Udyog and Acme Manufacturing Co Ltd., (1977) 47 Com Cases 503, marked a departure from the principle earlier held by the same court in Seksaria Cotton Mills Ltd. v. A.E. ∗ Meng Seng WEE ∗∗ 1. SCHEME OF ARRANGEMENT (PURSUANT TO SECTION 99 OF THE COMPANIES ACT 1981) between . However, NCLT has the powers to extend the time limit of 90 (ninety) days on reasonable grounds. A section 110 Scheme of Arrangement includes using a Members Voluntary Liquidation. Unless personal guarantees have been provided against company debt, this allows the company to be closed with no outstanding debts so you can find a new job or move onto a new business venture. However, the main concern that arises here is – taking into account the impact of section 29A on the scheme of arrangement. LIQUIDATION, JUDICIAL MANAGEMENT & SCHEME OF ARRANGEMENT – PROCEDURE & PRACTICE CHANTAN LLC 2 • Section 210, Companies Act (Cap 50) provides for schemes of arrangement to be binding on creditors and members alike after the A Section 110 scheme of arrangement is a process by which a bus iness or assets within a company are moved into another limited company, or companies. To a lay person, a “company liable to be wound up” meant a company that was either on the brink of bankruptcy, or was already into liquidation (since section 391 explicitly permitted a scheme to be presented by the liquidator, if the company was in winding up). PRIVACY POLICY SITE MAP, General Corporate Advisory and Commercial, Transaction Advisory and Mergers & Acquisitions, Prelitigation Advisory and Dispute Management. The scheme of arrangement refers to a court-approved scheme between a company, their shareholders and creditors, binding them to a reorganisation or restructuring of their rights and obligations. This flowchart and the explanatory text should be read with Information Sheet 29 External administration, controller appointments and schemes of arrangement: Most commonly lodged forms (INFO 29).. While it is not part of insolvency legislation, the procedure must be approved by the court under the Companies Act 2006. Scheme of Arrangement as a debt restructuring tool has been used sparingly in India. Liquidation – Sometimes creditor pressure becomes so overwhelming or the loss of a key customer is so devastating that directors find it a relief to enter into a Creditors Voluntary Liquidation. — In this case most of the creditors of the company, Hawk, were insurance companies that had reinsured with Hawk. The scheme is required to be approved by a majority of persons representing 3/4th in value of the creditors, or class of creditors or members or class of members, as the case may be, either voting in person or by proxy or by way of a postal ballot. The contributors of this blog have not reviewed all of the information on these sites or the accuracy or reliability of any information, data, opinions, advice, or statements on these sites. Judicial management is also often compared with a scheme of arrangement, which is a similar statutory tool designed to allow the rehabilitation of financially distressed companies. However, in such events, concerns and questions may arise with regard to the same management continuing the company, which has led the company into liquidation. The meeting of the creditors can be dispensed with, in the event the creditors representing 90% in value have agreed and approved the scheme of arrangement by way of affidavits. A Bermuda scheme of arrangement is similar to an English scheme of arrangement under part 26 of the Companies Act 2006, or a Hong Kong scheme of arrangement under part 13, division 2 of the new Companies Ordinance, and is most commonly used to Notify me of follow-up comments by email. These were discussed in the landmark Supreme Court ruling in Miheer N Mafatlal v Mafatlal Industries Limited (1996)). 1 What is a scheme? A scheme of arrangement is a mechanism by which a company may enter into a compromise or arrangement with its members or creditors. The recent rulings of appellate judicial and quasi-judicial authorities in India permitting the pursuit of schemes of arrangement even after initiation of liquidation proceedings may have sounded surprising to many. It may also be argued that one of the ways of recognising classes, in case of a company under bankruptcy, is their position in the waterfall under section 53 of the Code. After all, a section 230 compromise is not a resolution plan and in any case if the National Company Law Tribunal (NCLT), who would be sitting for approving such scheme, is able to see that the so-called scheme for a revival is an abuse of the process of law, the NCLT may always turn the scheme down. In order for a scheme of arrangement to be valid and enforceable, it must and The Nigerian Scheme of Arrangement The Nigerian Scheme of Arrangement is loosely based on the UK Scheme of Arrangement. The Insolvency and Bankruptcy Code, 2016 (“IBC”) has laid down corporate insolvency resolution process which is one of the modes of restructuring and the revival of a company. Where a meeting is required to be called pursuant to the order of NCLT, a notice of the meeting shall be sent to the creditors and members to their respective addresses and such persons shall vote at the meeting, either by themselves or through proxies or by way of the postal ballot for the purpose of adoption of the scheme. However, the main concern that arises here is – taking into account the impact of section 29A on the scheme of arrangement. On one hand, it works as an antidote for the ailing companies standing at the brink of liquidation, on the other hand, it may be a difficult process for liquidators to find out persons One of the main objectives of the IBC is to ensure that a company is revived, and liquidation is considered as a last resort. Disgorgement by SEBI under Section 32A of IBC: Death-Knell for Insolvency Resolution? One of the most important questions concerning schemes of arrangement is – do the schemes permit the promoters to do what they are not able to do by virtue of section 29A – submit and approve schemes of revival whereby the promoters will perpetuate their stay in the company? On one hand, it works as an antidote for the ailing companies standing at the brink of liquidation, on the other hand, it may be a difficult process for liquidators to find out persons who are willing to buy such companies. As a result, the directors took steps to place the Company in administration since the liabilities of the Company are believed to exceed the assets. Postings on this blog are for informational purposes only. It also modifies the existing law relating to schemes of arrangement. Further, is it alright for the jurisprudence relating to the apparent overlap and, to an extent, conflict between arrangement and liquidation to develop on its own, or should the lawmakers interfere and write the law, instead of waiting for long winding route of litigation to reach a finality? B. DEFINITIONS 1.1 In the Arrangement, unless the context Nothing herein shall be deemed or construed to constitute legal or investment advice. David Kirk, director at Kirks Insolvency, explains what a Section 110 scheme of arrangement is, and the reasons why a business may look to use one. These schemes of arrangement have not been very popular and have not been extensively used for the revival of the companies, however, the same gained light through the recent judgment of National Company Law Appellate Tribunal (“NCLAT”) in S.C. Sekaran v. Amit Gupta[1] and Ors. At the same time, the NCLT also needs to be careful in ensuring that the scheme does not become a device to hold the process of liquidation in limbo and perpetuate the stalemate. Permissibility of scheme of arrangement in liquidation under the Code has already been upheld in a string of rulings as well as dealt with under the Liquidation Regulations. The meeting of the creditors under Section 230 of CA, 2013 can be dispensed with, in the event the creditors representing 90% in value have approved the scheme of arrangement by way of affidavits. liquidation protective wrapper) may be used to restructure a company’s financial liabilities. However, Section 230 of the CA, 2013 or the IBC does not mention any such eligibility or ineligibility criteria for any person as to which member/creditor shall have the right to vote for a scheme of arrangement presented during the liquidation proceeding. Section 230 allows the liquidator of a company undergoing liquidation to file an application before the NCLT to seek sanction for a scheme of arrangement between the company and its creditors and, where applicable, its members. [1] Company Appeal (AT) (Insolvency) No. The Companies Act 2016 is anticipated to come into effect in late 2017. australian schemes of arrangement (pursuant to section 411 of the corporations act 2001) between hih casualty and general insurance limited (in liquidation) acn 008 482 291; fai general insurance company limited (in liquidation) acn 000 327 855; cic insurance limited (in liquidation) acn 004 078 880; world marine & general insurances pty limited However, the history of schemes of compromise and arrangement is indeed replete with examples of such arrangements seeking to bail out an entity that is otherwise doomed to be liquidated. Mechanics of schemes of arrangement during liquidation. Schemes can be used as a device to permit new liquidity (potentially at a super-priority level) to be injected into a company either by existing sponsors or by third-party funders and on terms which differ from the existing finance and inter-creditor documentation. This may be done if the directors want to move on from the business, perhaps through retirement or the business just coming to … The scheme may include terms on how it is to be terminated. +91 40 4003 2244 -47 Another major question is: unlike the erstwhile Companies Act, 1956 regime where both schemes of arrangement and winding up were to occur under the same law and before the same forum, schemes of arrangement are now under the Companies Act, and liquidation under the Code. Termination of a Scheme of Arrangement. [Vinod Kothari is an insolvency practitioner at Vinod Kothari & Co and can be reached at [email protected]. However, the key difference between them is that a scheme of arrangement operates under the supervision of the company’s management, while judicial management is supervised by an external judicial manager … Typically, the initiation of an application before the NCLT under section 230 happens by the board of directors approving a scheme and making an application for convening a meeting of shareholders and members. Pursuant to the provisions of IBC, there is no bar on the continuation of the management and the promoters of the company. How would a scheme of arrangement work during liquidation? A scheme of arrangement is a very flexible and long-established Companies Act procedure which can be used to vary the rights of some or all of a company’s creditors and/or shareholders. The use of creditors' schemes of arrangement is on the rise in Australia (as we discussed in our previous article - Update on Creditors Schemes of Arrangement in Australia). Khandelwal Udyog and Acme Manufacturing Co Ltd. Meghal Homes P. Ltd. v. Shree Niwas Girni K.K. Since India stands out in the world, having enacted section 29A of the Insolvency and Bankruptcy Code, 2016, which disqualifies a promoter from submitting resolution plans or acquiring the assets of the entity in liquidation, the issue causing a lot of debate is – how does the possibility of a scheme of arrangement co-exist with this principle of promoter disqualification? The sweep of the section is indeed very wide – it is not only limited to promoters of the company in question, but also any other defaulter company. promoting a scheme outside of a liquidation. The IBC provides that such schemes should be completed within the initial 90 (ninety) days from the date of the liquidation order. Highlands Insurance Company (U.K.) Limited (in Scheme of Arrangement and Liquidation) - PwC announces 15% initial payment percentage and significant progress in the company’s closure plan Published at 10:03 AM on 11 February 2014 The definition continued in section 390 (a) of the Companies Act, 1956. Samiti, (2007) 139 Com Cases 418, is a case where the company was ordered to be wound up in 1984 and the scheme of arrangement was proposed in 1994. Applications for relief in relation to a Scheme of Arrangement should also be submitted through the ASIC Regulatory Portal: Applications under s411(2)(a) for ASIC to reduce the 14-day notice period of an application under s411(1) or s411(1A) for a scheme of arrangement should be submitted under the ‘ Apply for ASIC approval, consent, statement, nomination, other’ transaction. Filing of Form PAS-4 in Private Placements, Promoter-Friendly Amendments to the SEBI Takeover Regulations, IBC v. Arbitration: A Case for Prevalence of the IBC over the Arbitration and Conciliation Act, Financial Statements of Foreign Subsidiaries of Indian Listed Companies, The Foibles of a Databank and Proficiency Test for Independent Directors, How Banking Business Works: A Banking Lawyer’ Perspective. Very often, the interest of promoter-shareholders lies in prolonging the uncertainty – when they see that the ultimate is their exit from the management, they try to prolong the stalemate. The bankruptcy regulator has made way for schemes of arrangement once an insolvent company reaches the liquidation stage. Permissibility of scheme of arrangement in liquidation under the Code has already been upheld in a string of rulings as well as dealt with under the Liquidation Regulations. The IBC does not provide for the ousting of the management of the company. Such persons include an undischarged insolvent, a wilful defaulter, a person who has been convicted or a promoter of a company. (1) A scheme of arrangement in relation to the Company's direct insurance creditors became effective on 19 August 2009. Scheme of compromise and arrangement for companies in liquidation may sound like a new ray of hope, however, the option of scheme of arrangement for companies heading towards winding up has always been present under our corporate laws. Key differences between schemes of arrangement and resolution under Code. During a scheme of arrangement the persons in control prior to the scheme (whether directors, liquidators or receivers) retain the control which they ordinarily have and the shareholders’ rights are modified only to the extent that this is provided for in a binding scheme… When a solvent company chooses to enter liquidation , this is done through a process known as a Members’ Voluntary Liquidation (MVL). wherein the liquidator was directed by the NCLAT to take steps in terms of Section 230 of the CA, 2013 for the purpose of revival of the corporate debtor. But there does not seem to be sufficient reason to have a generalised disqualification for promoters or shareholders in proposing the scheme. An Overview of Creditor Schemes of Arrangement April 1015/04/2010 2 2.2 The three main types of Scheme: While there are few limits on what a company can propose to its creditors in a Scheme, three The object of introducing section 29A in the Code, unusual in insolvency laws around the world, is to debar existing promoters of the company in default to perpetuate their stay in the company by submitting resolution plans. The meetings of shareholders and creditors for approving the scheme are called at the instructions of the NCLT. A Scheme of Arrangement under Part 9 of the Companies Act 2014 ("Part 9 Scheme") is a flexible mechanism which allows for the restructuring of a company's debt and / or shareholding.

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