Creditor Compromise – Company
A compromise with creditors is an alternative to a formal insolvency process such as liquidation or receivership. 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 creditor compromise works best where the proposal made will result in a higher return to creditors than if the company was liquidated. Although this process needs to notified to the Registrar of Companies it does not need to be publicly notified and advertised. A creditor compromise is a structured agreement, under part XIV of the Companies Act 1993, whereby the company directors put forward a proposal to creditors which would allow the company to continue trading. 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. All creditors must be notified and a meeting held at which a resolution is proposed to adopt the proposal. The resolution is adopted only if a majority in number and more than 75% in value in each class of creditors voting in person or by proxy or by post, vote in favour of the resolution. Only creditors that have been properly notified of the meeting are bound by the compromise, if it passed at the meeting. Any creditor not notified can therefore still take legal action against the company. The proposed compromise must also be fair to all creditors and classes of creditor. If a creditor or class of creditor deem they have been unfairly treated, they can apply to the court to have the compromise ended. 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. Should the proposal be accepted by the creditors it then falls to a compromise manager to administer the accepted arrangement. As supervisors of successful creditor compromises, Principle Insolvency has worked closely with the directors and creditors to achieve the best possible outcome for all parties. If you are a director or adviser of a company and believe that a creditors compromise would be beneficial, please contact us to discuss your options further.
Credit Compromise – Individual / Personal
For an individual, a compromise is an alternative to bankruptcy. A bankrupt would be prohibited from being a director of a company which could be restrictive to that individual. A compromise for an individual is governed by Part 5 of the Insolvency Act 2006, and provides a mechanism for insolvent individuals to make a proposal to their creditors. Individuals may be motivated to make a proposal to their creditors as they may wish to avoid entering bankruptcy. A successful personal compromise involves transparency on the debtor’s part with their creditors. This transparency extends to disclosing their asset position and declaring their liabilities. A meeting of creditors is held once notice is given to all creditors advising of what the proposal to creditors is and distributing the asset and liability position to consider. These informational requirements, communication with creditors and convening a meeting of creditors is arranged by the nominated provisional trustee. The insolvent individual also lodges the proposal document with the High Court. Any credit compromise proposal put to creditors is voted on. In order for it to be accepted and binding, it requires a majority in number and 75% by value of creditors voting on the proposal. If passed, the insolvent individual must then apply to the High Court for approval where it becomes binding on all the insolvent’s creditors. The Trustee is then tasked with administering the compromise with the creditors.
If you need to discuss your personal insolvency options, please contact Principle Insolvency to discuss how we can help you.
Creditor Compromise Alternative to Formal Insolvency
If you are a director or individual that believes a creditors compromise would be beneficial as an alternative to a formal insolvency, please contact Principle Insolvency to discuss this further.