A commercial compromise with creditors is an underutilised mechanism available to companies under Part 14 of the Companies Act 1993. This scheme of arrangement is not often used but can be a powerful tool to achieve a compromise with creditors of a company under financial strain.
A compromise works best where the proposal made will result in a higher return to creditors than if the company was liquidated.
A compromise is typically proposed by the board of directors to a class or classes of a company’s creditors and can take many forms. The proposal to creditors can include cancelling all or part of a debt owed by a company or varying the rights of creditors of a company.
Any compromise proposal put to creditors is voted on and to be accepted and binding requires a majority in number and 75% by value in each class of creditors voting on the question.
Should the proposal be accepted by the creditors it then falls to a compromise manager to administer the accepted arrangement.
If you are a director or adviser of a company and believe that a creditors compromise would be beneficial, please contact us for discuss your options further.
Other areas in Creditor Compromise: Personal
