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Revival is always preferable over death, unless the so-called revival is just another ploy to permit a promoter using limited liability to continue to do unfair trading. Indian law has gone to the extent of explicitly disabling the promoters (mostly majority shareholders) from proposing any resolution plan [section 29A(c) of the Code], or acquiring any assets of the company under liquidation [proviso to section 35(1)(f) of the Code]. receive in a liquidation or receivership scenario • After the creditors and members meetings are held, the examiner prepares a report to the Court which outlines the scheme of arrangement for the creditors and the outcome of the respective creditors meetings • It is also possible that some of the pages linked may become inactive after the lapse of a period of time. These were discussed in the landmark Supreme Court ruling in Miheer N Mafatlal v Mafatlal Industries Limited (1996)). If the scheme of arrangement is sanctioned by the NCLT, by an order, the same shall be binding on the company, creditors and members. Therefore, if a scheme of arrangement has been suggested, should liquidation proceedings in the meantime stand stayed, as otherwise the very existence of a chance of revival through the scheme route will get nullified if liquidation achieves some milestones? 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”). 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. 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. Section 29A has blocked the submission of resolution plans in several high profile insolvency cases in the country, and it will be illogical to allow the submission of revival plans by promoters or controlling shareholders who cannot submit resolution plans by virtue of section 29A. 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. Naik, (1967) 37 Com Cases 656, that the provision was meant only for a company on the brink of bankruptcy. The scheme may be proposed by shareholders, or creditors, or the liquidator himself. 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. A scheme of arrangement (a “Scheme”) is one of the methods of effecting a take-over. Scheme of Arrangement as a debt restructuring tool has been used sparingly in India. 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. Pursuant to Section 230 of the CA, 2013, a scheme of arrangement can be proposed by a liquidator. 112777196_31 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 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. > the Distribution Scheme, which is a means of returning assets to the company’s creditors and is normally used as an alternative to liquidation – a typical structure is set out in Schedule 2, Part C. 2.3 Recent “Creditor Schemes”: To put the growing popularity of Schemes into context, significant Schemes agreed this year have A. However, there is no clarity given the fact that there is no specific provision either under the CA, 2013 or under the IBC which restricts any particular set of persons to not vote on a scheme of arrangement presented during liquidation. [Vinod Kothari is an insolvency practitioner at Vinod Kothari & Co and can be reached at resolution@vinodkothari.com. The company does not need to be insolvent in order to avail itself of a Part 9 Scheme. If the liquidator sees prima facie strength in the scheme, the liquidator may put forth the scheme before the NCLT. In any case, the scheme of arrangement has the supermajority vote, not only of the shareholders, but also each of class of creditors. The order of the NCLT shall be filed with the registrar within 30 (thirty) days of receipt of the order. It seems that it will be logical that the winding up proceedings should be temporarily stayed, until the shareholders’ and creditors’ meetings are called to consider the scheme. Regulation 2B of the Liquidation Regulations says that the time taken on compromise/arrangement, not exceeding 90 days, shall not be included in the liquidation period but does not provide for contingencies where the scheme fails during the implementation 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. 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? If the schemes have the approval of the shareholders and creditors, then the NCLT may go by the principles well enunciated in Miheer N Mafatlal and similar rulings and, if eventually the NCLT passes order approving the scheme, the initiation of liquidation will be liable to be reversed. 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 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 . The bankruptcy regulator has made way for schemes of arrangement once an insolvent company reaches the liquidation stage. 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. The Companies Act 2016 is anticipated to come into effect in late 2017. 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. Taking into consideration Section 29A of IBC, promoters cannot propose the scheme of arrangement as Section 29A disqualifies promoters from proposing the resolution plans. But there does not seem to be sufficient reason to have a generalised disqualification for promoters or shareholders in proposing the scheme. Notify me of follow-up comments by email. C. WHETHER PERSONS INELIGIBLE UNDER SECTION 29A OF THE IBC CAN PROPOSE A SCHEME? 1 What is a scheme? 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. B. 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. 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? SCHEME OF ARRANGEMENT (PURSUANT TO SECTION 99 OF THE COMPANIES ACT 1981) between . These third-party links are offered solely for the purpose of discussion and thinking on Indian corporate law and other related topics. Flowchart 13: Scheme of arrangement or reconstruction. EMERGING MARETS RESTRUCTURING OURNA ISSUE NO. Provisional liquidation Provisional liquidators may be appointed to preserve assets in the period between the date that the petition is filed and the date on which any order is likely to be made. Save my name, email, and website in this browser for the next time I comment. It is pertinent to state here that, Section 230 of the CA, 2013 does not restrict promoters from proposing a scheme of arrangement. 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 scheme may be proposed by shareholders, or creditors, or the liquidator himself. A scheme of arrangement is a statutory, binding compromise reached between a company and its shareholders or creditors. A scheme under Section 230 can be filed by the liquidator, a creditor (or class of creditors), or a member (or class of members). Overview of the insolvency reforms made by the Companies Act 2016 . 495 & 496 of 2018, [2] Company Appeal (AT) No. In order for a scheme of arrangement to be valid and enforceable, it must and How would a scheme of arrangement work during liquidation? (See, however, an article by my colleague arguing that the head-count test was consciously dropped based on recommendations of JJ Irani Committee). 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 … In this regard, it is important to remember that BAICL Bermuda was only a branch of a BAICL, which operated A scheme of arrangement is a mechanism by which a company may enter into a compromise or arrangement with its members or creditors. [Vinod Kothari is an insolvency practitioner at Vinod Kothari & Co and can be reached at [email protected]. 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. ∗ Meng Seng WEE ∗∗ 1. E. MANAGEMENT OF THE COMPANY: WHETHER IT SHALL BE RETAINED OR NOT? 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 implement a distressed financial restructuring by varying the rights of the relevant stakeholders of the company, although it can be … Meghal Homes P. Ltd. v. Shree Niwas Girni K.K. Notice of the court However, the main concern that arises here is – taking into account the impact of section 29A on the scheme of arrangement. By considering the design of the IBC and taking voting pattern into consideration, it may be possible to state that persons ineligible under Section 29A may not be entitled to vote. T-202, Technopolis, 1-10-74/B, Above Ratnadeep Super Market, Chikoti Gardens, Begumpet, i) Scheme Creditors would receive final payment of their Scheme Claims, irrespective of the future outcome of the liquidation of BAICL outside Bermuda. 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. 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. 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. What is a Section 110 Scheme of Arrangement? 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).. liquidation) (each a "Company" and together, the "Companies") for the purpose of considering and, if thought fit, approving (with or without modification) a scheme of arrangement (together the "Schemes") in respect of each Company pursuant to section 86 of the Companies Law (2016 It was only due to judicial interpretation of the expression “company liable to be wound up” that the expression includes every company which may be wound up under the Act following the procedure laid for winding up; healthy companies could also be covered under the chapter pertaining to schemes of compromise or arrangement. 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