BBM 501 CORPORATE LAW 1 COMPROMISE, RECONSTRUCTION N AMALGAMATION

COMPROMISE, AMALGAMATION & RECONSTRUCTION COMPROMISE Compromise Term which implies the existence of a dispute & settlement of claims in such dispute by mutual concessions Types of compromise
1. Compromise during winding up o

During winding up, the liquidator exercises powers of compromise with the sanction(approval) of the Court

o However, in voluntary winding up, the liquidator exercises these powers with the sanction of the special resolution of the co. o The Liquidator may pay the creditors in full or make compromise with the creditors or debtors o Any compromise entered into by the Liquidator may be subsequently ratified by a special resolution of the co. o Compromise is subject to appeal o Court may amend, vary, confirm or set the compromise 2. Compromise in a going concern o In a going concern, compromise may be brought about between co. & its creditors or co. & its members o Creditor or member may also apply to the Court o Court sanctions the compromise if it is approved by 3/4th of the creditors in value or members of the meeting o Court also considers minority rights & interests of the co. o There must be full disclosure of compromise in Court
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o A certified copy of the Court order must be filed with the Registrar, for it to become effective o Information of compromise to be sent to creditors & members stating the full terms of the compromise. Any default is punishable with a fine of Rs.5000
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BBM 501 CORPORATE LAW 2 COMPROMISE, RECONSTRUCTION N AMALGAMATION

o Once the compromise is sanctioned by Court, it becomes binding on all the creditors & members o In case of co. being wound up, liquidator & contributories are bound by the compromise o Court shall sanction the compromise only if it is satisfied that it should be sanctioned & a majority of 3/4th of creditors present & voting agree to the compromise o Co. or member by whom application has been made, should disclose all relevant materials such as financial position of the co., Auditors reports on the accounts of the co., any pending investigation, etc o Order of the Court is effective only after a copy of it is filed with RoC ARRANGEMENT Arrangement is a wide term, which includes compromise & reorganization of share capital Sec.390 B Defines arrangement as re-organization of share capital of co. by consolidation of shares of different classes or by division of shares into different classes or by both of these methods All provisions with respect to compromise are applicable to arrangement also Arrangement may also be entered into between a co. about to wind up & its creditors Such arrangement is binding on the co. & creditors, if sanctioned by a special resolution Appeal can be made on an arrangement within 3 weeks from the completion of arrangement Court may amend, vary, confirm or set aside the arrangement

RECONSTRUCTION
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Re-construction Means reconstitution of the co. by transfer of whole of its undertaking & property to a new co. & under an arrangement by which the shareholders of an old co. are entitled to recover the same shares in the new co. Objects of reconstruction a. To adopt or pursue new objects which the Court would not sanction otherwise

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BBM 501 CORPORATE LAW 3 COMPROMISE, RECONSTRUCTION N AMALGAMATION

b. To bring about alteration of the rights of a class of shareholders or creditors

AMALGAMATION Amalgamation Combination of 2 or more co.s or the business of 2 or more co.s into one co. or into the control of one co. Shareholders of the original co. are transferred to the new co. Power of amalgamation has to be specifically mentioned in the MoA. If not mentioned, amalgamation can be carried out after alteration of MoA Procedure
i.

The scheme of amalgamation has to be approved by the holders of 3/4th in value of shares concerned Scheme must be sanctioned by Court. If there is a scheme for amalgamation of a co. being wound up with another co., it is not sanctioned by the Court unless the CLB or RoC gives report that the affairs of the co. have not been conducted in the manner prejudicial to the interests of the members or public

ii.

iii.

Within 30 days of order of the Court, co. must file certified copy of it with RoC for registration. For default, the co. & every officer is punished with fine

Acquisition of shares of dissenting shareholders a) Scheme of amalgamation involves the transfer of shares by one co.[transferor co.] to another co.[transferee co.]
b) Offer of shareholders of transferee co. to acquire the shares of the transferor co., must

be approved within 4 months by holders of not less than 9/10th in value of shares of transferor co. c) Transferee co. should give notice to dissenting shareholders within 2 months (after the expiry of 4 months), that it wishes to acquire their shares. Within one month, any
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dissenting shareholder may apply to the Court. The Court interferes if there is injustice, fraud, deception, etc. If no application is made to Court, transferee co. may acquire the shares of all persons on whom notice is served
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BBM 501 CORPORATE LAW 4 COMPROMISE, RECONSTRUCTION N AMALGAMATION

d) When transferee co. acquires the share & pays their price, transferor co. must register the transferee co. as the holder of those shares e) While applying to the Court, dissenting shareholder must prove that the scheme is unfair or price is inadequate POINTS OF NOTE ON AMALGAMATION If the Central Govt is satisfied that it is essential in public interest that 2 or more co.s should amalgamate, the Central Govt may provide for amalgamation of those co.s, after notification in Govt Gazette Amalgamated co. should have the constitution, powers, rights, interests, duties, obligations, etc as specified in the order Every member or creditor of each co. before amalgamation must have same interest or rights against the amalgamation co. as he had in the co. in which he was originally a member or creditor

Destruction of records or accounts of amalgamated co., must be done only after the prior permission of Central Govt. The Central Govt. shall appoint a person to ascertain that there is no evidence of any offence, in connection with the promotion, formation or management of first or amalgamated co.

PADMAPRIYA SRIVATSA | [Type the company address]