CORPORATE GOVERNANCE AND BUSINESS LAW

PRESENTED BY-PALLAVI GUPTA RATI SHUKLA

COMPROMISE , ARRANGEMENT AND RE-CONSTRUCTION

Compromise is an agreement terminating a dispute between parties as to the power to enforce rights or as to what those rights are .as a term “compromise” means amicable settlement of a dispute or controversy by the methods of making mutual concession. The term arrangement is wider in scope and is not limited to compromise alone According to section 309(b) of the companies act ,1956, “an arrangement includes reorganization of the share capital of the company by the consolidation of shares of different classes or by division of shares of different classes or by both methods.

PROCEDURE OF COMPROMISE AND ARRANGEMENTS

The procedure of the compromise and arrangements can be discussed under the following heads-

Compromise when the company is a going concern(sec 391-393).

Meeting of creditors or members[sec 391(1)]. Approval of the schemes. Sanction by the courts[sec(391)] Copy of court’s order to be filed with the

registrar[sec391(3)]. Copy of court’s to be annexed to memorandum. Stay of suits or proceeding against the company

[sec391(6)] .

RE-CONSTRUCTION

The term re-construction implies the process followed for re-organization of a company with respect to its capital structure including the reduction of claims of both the shareholders and the creditors of the company.

TYPES OF RE-CONSTRUCTION

There are two types of re-construction are as follows-

External re-construction-the winding up of an existing company and registering itself into a new one after a rearrangement of its financial position.

Example-Golden tea co. ltd. was taken over by a newly formed ‘New golden tea co. ltd.’

Internal re-construction-it means a recourse undertaken to make necessary changes in the capital structure of a company without liquidating the existing company. Under it,the accumulated trading losses and fictitious assets are written off against the sacrifice made by these interest holder in the form of reduction of paid-up value of their interest.

STEPS OF RE-CONSTRUCTION

The steps are as follows- Estimation of loss Writing-off the loss Compensating the parties Arrears of preference dividend Additional working capital Funds for fixed assets

PREVENTION OF OPPRESSION AND MISMANAGEMENT

According to Lord Cooper-the essence of the matter seems to be that the conduct complained of should the lowest involve a visible departure from the standards of fair dealing and a violation of the conditions of fair play on which every shareholder who entrusts his money to the company is entitled to rely.

PREVENTION OF OPPRESSION

Section 397 of the act deals with the concept of oppression. These are basically two very important ingredients involved-

Affairs of the company are conducted in a manner prejudicial to the public at large. Or oppressive to any member therein.

To wind up the company would result in unfairly prejudicing the members, but the facts and circumstances otherwise suggest that the winding up of the company would be the right course of action.

MISMANAGEMENT

Section 398, in dealing with the concept of mismanagement also highlights two basic concepts that the affairs of the company are being conducted or such affairs are likely to be conducted in a manner which is-

Prejudicial to public interest Prejudicial to the interest of the

company

PREVENTION OF MISMANAGEMENT

The company law board may give relief if it is of opinion-

That the affairs of the company are being conducted in a manner prejudicial to the public interest or the interest of the company

That by the reason of a material change in the management or the control of the company , the affairs of the company is likely to be conducted in a manner prejudicial to the public interest or the interest of the company.

PARTIES ENTITLED TO APPLY(SECTION 399)

1. Companies having share capital Not less than 10 members or 1/10 of the total

number of its members , whichever is less. By any members holding not less than 1/1of

the issued share capital.2. Companies not having share capital 1/5 of the total number of the company.3. The central government or any person

authorized by the central government.4. Trustees of a shareholder5. A legal representative of a deceased member.

WINDING-UP

• Winding up/liquidation represents the last stage in company’s life.

• It is a proceeding by which a company is dissolved.

• The company’s assets are disposed of , the debts are paid off out of the realized assets , and the surplus , if any is then distributed among the members in proportion to their holdings in the company

Modes of Winding Up

There are two modes of winding up of a company.

Winding up by the Tribunal Voluntary winding up which may be (a) members’ voluntary winding up

OR (b) creditors’ voluntary winding up

Winding Up by Tribunal

The is also known as compulsory winding up and a company may be wound up in the following cases.

Special resolution of the company Default in delivering the statutory

report to the Registrar Failure to commence/suspension of

business Reduction in membership Inability to pay its debts Just and equitable

Voluntary Winding Up

Voluntary winding up means winding up by the members or creditors of a company without interference by the Tribunal.

A company may be wound up voluntarily:

By passing an ordinary resolution By passing a special resolutionCommencement of voluntary

winding upAdvertisement of resolution

Types of Voluntary Winding UpA voluntary winding up may be a: Members’ voluntary winding up Creditors’ voluntary winding up

members’ voluntary winding up Declaration of solvency Provisions applicable Creditors’ voluntary winding up Meeting of creditors Notice of resolution to be given to Registrar Appointment of liquidator Appointment of committee of inspection Liquidator’s remuneration Board’s power to cease on appointment of liquidator Power to fill vacancy in office of liquidator Duty of liquidator to call meeting at the end of each year Final meeting and dissolution

Consequences of Winding Up

Consequences as to shareholders/members

Consequences as to creditors Preferential payments Consequences as to servants and

officers Consequences as to proceedings

against the company Consequences as to costs