Sections 245 to 247 of the Companies Act 1997 deal with what happens after a compromise has been approved.
Section 245 — varying a compromise
An approved compromise may be varied either —
(a) in accordance with any procedure for variation incorporated in the compromise as approved; or
(b) by the approval of a variation in accordance with this Part, which applies with such modifications as may be necessary as if any proposed variation were a proposed compromise.
The provisions of this Part apply to any compromise so varied.
Route (b) means running the whole section 243 process again — a creditor list, notices, statements, a Schedule 7 meeting and a fresh vote. That is expensive and slow.
Route (a) avoids it. This is why section 243(2)(b)(vii) requires the statement given to creditors to contain details of any procedure proposed as part of the compromise for varying it following its approval. A well-drafted compromise includes a variation mechanism — for example allowing extensions of time or adjustments approved by a creditors’ committee — disclosed at the outset.
Section 246(1) — directions, waivers and stays
(a) give directions in relation to a procedural requirement imposed by this Part, or waive or vary any such requirement, where satisfied that it would be just to do so; or
(b) order that, during a period beginning not earlier than the date notice was given of the proposed compromise and ending not later than one month after notice was given of the result of the voting —
(i) proceedings in relation to a debt owing by the company be stayed; or
(ii) a creditor refrain from taking any other measure to enforce payment of a debt owing by the company.
Nothing in subsection (1)(b) affects the right of a secured creditor during that period to take possession of, realise, or otherwise deal with, property of the company over which that creditor has a charge.
So a stay buys breathing space against unsecured creditors only. A debenture holder may still appoint a receiver and sell the charged assets while the compromise is being voted on. Any compromise that depends on retaining secured assets must therefore be negotiated with the secured creditors, not imposed on them — though note that under section 241 a secured creditor is a creditor who may vote.
Compromises are often prepared under pressure, and procedural slips happen. The Court may waive or vary a procedural requirement where it is just to do so — which can save a compromise that would otherwise be vulnerable under subsection (3)(b).
Section 246(3) — a creditor’s challenge
(a) insufficient notice of the meeting or of the matter required to be notified under section 243 was given to that creditor; or
(b) there was some other material irregularity in obtaining approval; or
(c) in the case of a creditor who voted against the compromise, the compromise is unfairly prejudicial to that creditor, or to the class to which that creditor belongs,
the Court may order that the creditor is not bound by the compromise, or make such other order as it thinks fit.
An application under subsection (3) shall be made not later than one month after the date on which notice of the result of the voting was given to the creditor.
That is why section 244(4) requires the proponent to give notice of the result to each known creditor: it starts the clock, and closes it a month later.
Unfair prejudice is available only to a creditor who voted against the compromise. A creditor who voted in favour, or who abstained, cannot complain that the result was unfair to them — though grounds (a) and (b) remain open to any creditor entitled to vote.
The parallel with the shareholder remedies is close: compare section 91, where the buy-out right requires the shareholder to have cast all their votes against the resolution.
The usual relief is that the creditor is not bound — leaving the compromise intact for everyone else while releasing the applicant. But the Court may make such other order as it thinks fit, which could include setting the compromise aside altogether.
Section 247 — the compromise and a later liquidation
Where a compromise is approved, the Court may — on the application of the company, a receiver appointed over the whole or substantially the whole of the assets and undertaking, or with leave, any creditor or shareholder — make such order as it thinks fit with respect to the extent, if any, to which the compromise will, if the company is put into liquidation, continue in effect and be binding on the liquidator.
Where the company is subsequently put into liquidation, the Court may — on the application of the liquidator, a receiver appointed in relation to property of the company, or with leave, any creditor or shareholder — make such order as it thinks fit with respect to the extent to which the compromise will continue in effect and be binding on the liquidator.
A compromise binds creditors, but a liquidator has independent statutory powers — including to attack voidable transactions under sections 340 to 347 and to apply the Schedule 9 priority order. Section 247 lets the Court settle how far the compromise survives a liquidation.
Subsection (1) allows that question to be resolved up front, when the compromise is approved. That is valuable: creditors deciding how to vote can be told whether the deal will hold if the company fails anyway. Subsection (2) allows it to be resolved later, on the liquidator’s application.
Note that Part XVI offers a different route to certainty: an arrangement, amalgamation or compromise approved by the Court under section 250, which the Court may support with additional orders under section 251. Section 252 confirms that Parts XIV and XV are not affected by Part XVI, and section 253 applies section 247 in that context.
Practical points
- Build in a variation procedure and disclose it in the section 243 statement — it is far cheaper than a second process.
- Get the creditor list right. A compromise binds only those given notice, and an omitted creditor can wreck it.
- Seek a stay early under section 246(1)(b) — but understand it does not touch secured creditors.
- Negotiate with secured creditors separately; they can enforce throughout.
- Consider a section 247(1) order when the compromise is approved, so its status in a liquidation is settled.
- If you are an unhappy creditor, vote against and apply within one month of notice of the result — ground (c) is closed to those who did not.
- Consider Part XVI where the arrangement is complex, affects several classes, or needs Court-ordered transfers of property.
Sources
- Companies Act 1997 — ss 91, 241–248, 249–253, 335, 340–347, 351; Schedules 7 and 9
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.