Arrangements in Winding Up
Where a company is proposed to be wound up or is in the course of being wound up in a members’ voluntary liquidation, the whole or any part of its business or property may be transferred or sold to another company or undertaking and the liquidator may in compensation or part compensation for the transfer or sale, receive shares, or like interests in the transferee company for distribution to the members of the transferor company.
The liquidator may enter into any arrangement whereby the shareholders of the transferor company may, in lieu of receiving cash, shares, or other interests, or in addition to them, participate in the profits of, or receive any other benefit from the transferee company.
The powers of the liquidator to exercise the above powers are not exercisable unless a special resolution of the company sanctions their exercise, generally or with regard to a particular arrangement. Any sale or arrangement entered in pursuance of this power is binding on the members of the transferor company.
Dissenting shareholders may require the liquidator to abstain from carrying out the resolution or purchase out their interest at a price to be determined by agreement, or in default by arbitration. The arbitration is undertaken by a single arbitrator appointed by agreement between the holder of shares or by two arbitrators, one appointed by each party to the arbitration. A resolution of the members is not effective to confer sanction if an order is made within a year afterwards for winding up the company by the court unless the resolution is confirmed by the court.
Meetings to Approve I
An arrangement includes a reorganisation of the share capital of the company by the consolidation of shares of different classes or by the division of shares into shares of different classes or by both.
A compromise or arrangement may be made between a company and its creditors or its members or any class of them. The requisite majority for approval is 75% of the creditors or members or of the relevant class of members or creditors.
Where a compromise is proposed between the company and any members, creditors or a class of them, the directors may convene meetings of the appropriate members, creditors or the appropriate class concerned. Separate meetings must be held and approvals must be obtained for each separate class if any.
Meetings to Approve II
Where the directors do not convene meetings, the court on application of any of the company, the creditor or members; or the liquidator, may order a scheme meeting or scheme meetings to be summoned in such manner as it directs. The court may give directions as to what are the appropriate scheme meetings that must be held.
The court may on the application of the company, director, a creditor, member or liquidator, restrain proceedings against the company, where one or more scheme meetings is convened or where an application is made for court directions, for such period as the court thinks fit.
Where a scheme meeting is convened or summoned, then with every notice convening the meeting shall enclose a scheme circular It must eplain the effect of the compromise or arrangement. Every director and debenture trustee shall provide to the company in writing such information concerning himself as may be required for the scheme circular.
Meetings to Approve III
The notice of the meeting is to state material interests of the directors, whether as directors, members or creditors and the effect thereon of the compromise or arrangement, insofar as it is different from the interests of persons with like interest. Where the compromise or scheme affects the right of debenture holders, it is to give the same explanation in relation to the interests of directors.
Every notice convening or summoning a meeting is to include a copy of the scheme circular or notification as to where copies of it may be obtained. Where a notice by advertisement includes a notice that the scheme circular may be obtained by creditors or members entitled to attend the scheme meeting, they are entitled to a copy of the scheme circular, free of charge on application to the company.
Every officer in default including a liquidator and the company is guilty of a category 3 offence if it fails to undertake the above requirements. It is a defence to prove that the default was due to the refusal of another person such as a director or a debenture trustee, to supply the necessary particulars as to his interests. Directors also include shadow directors and de facto directors for this purpose.
Becoming Binding I
If the below conditions are complied with, a compromise or arrangement shall become binding on creditors or members, or the class thereof as the case may be (and the company, liquidators and contributories, in the case of a company which is being wound up).
The conditions are
- a special majority (at least 75%) at the scheme meeting, or, where more than one scheme meeting is held, of each scheme meeting, must vote in favour of the compromise or arrangement;
- notice of the passing of such resolutions and of the application to the court for approval must be advertised in at least two daily newspapers circulating in the district where the registered office or principal office of the company is situated, and
- the compromise or arrangement is also confirmed by the court.
State authorities may accept a proposal under a scheme or arrangement notwithstanding that it impairs their rights as a creditor or under any legislation.
Becoming Binding II
Where the scheme or arrangement approval order is made by the court, the company must register it with the CRO within 21 days. The scheme or arrangement shall become take immediate effect. A copy of the scheme order must be attached to every copy of the constitution made afterwards. Default is a category 3 offence on the part of the company and any officer in default.
Where it is shown to the court, on application for the confirmation of a compromise or arrangement for the reconstruction or amalgamation of a company or companies under a scheme, that the whole or part of the undertaking, assets or liabilities of the company in the scheme is to be transferred to a new company, the court may, either by the scheme order or a subsequent order, make the following orders.
Where the order provides for the transfer of assets and liabilities, they are deemed to be so transferred, and they become the assets and liabilities of the new company. Each company involved is to deliver a copy of the order to the CRO within 21 days. Default on the part of the company or an officer in default is a category 3 offence.
Becoming Binding III
The court may make provision
- to transfer to the new company the whole or any part of the undertaking, assets and liabilities of any old company;
- to allot or appropriate to the new company, any shares, debentures, policies and like interests in that company which, are to be allotted or appropriated by the company to that person;
- to continue legal proceedings by or against any old company
- for the dissolution of any old company;
- for persons who dissent within such time and manner as may be directed;
- to make such incidental, consequential and supplemental arrangements and orders as are necessary to secure the reconstruction or amalgamation shall be fully and effectively carried out.
Acquiring Dissenting Shareholders I
Where there is a scheme, contract or offer involving the acquisition by one-party (the offeror) of the beneficial ownership of all the shares (other than the shares in which the offeror already holds in the capital of the company), the offeror who receives acceptances from at least 80% of the shareholders may acquire the remaining shares compulsorily.
The offeror is not entitled to exercise the right where it holds more than 20% of the offeree unless the assenting shareholders are at least 80% in value and 50% in number of the shareholders.
The right is to acquire the beneficial ownership of all or the remaining shares affected from the dissenting holders, on the same terms as have become binding and approved or where an application is made to the court, on the terms which the court specifies.
The right applies when the scheme has become binding or been approved or accepted in respect of not less than 80% in value of the shares affected, and has become so binding or been so approved or accepted not later than four months after the date of publication generally to the holders of the shares affected by the terms of the scheme, contract or offer.
Acquiring Dissenting Shareholders II
There are conditions applicable to the acquisition of the shares of the dissenting shareholders.
The offeror, must within six months of the offer becoming binding on 80% of the shareholders, give notice in the prescribed form to the dissenting shareholders that it wishes to acquire the beneficial ownership of those shares. Thirty days must pass after such call notice has been given without an application to the court by a dissenting shareholder. Alternatively, if an application is made, it must be withdrawn, or the court must nonetheless approve the acquisition.
Where the scheme, contract or offer provides that an assenting shareholder may elect between two sets of terms, the call notice shall state the alternative terms which shall be applicable if the election is not made within 14 days of the notice.
Acquiring Dissenting Shareholders III
The terms upon which the offeror shall be entitled and bound to acquire the beneficial ownership of the shares of the dissenting shareholder shall be set out. Where there are alternatives, the terms that apply in default of such notification, shall be specified.
Where a call notice is given to a particular dissenting shareholder, the offeror must within 30 days after the date of the scheme becoming binding, approved or accepted, give notice of this matter to each dissenting shareholders by way of information notice (unless it has already given a call notice to that dissenting shareholder). The offeror is bound to acquire the beneficial ownership of the remaining shares on the terms which have become binding, approved or accepted, if the offeror has become entitled to acquire those shares or where, the dissenting shareholder, within three months from the giving of the information notice, requires the offeror to acquire his shares.
The dissenting shareholder may apply to the court for an order varying the terms of the scheme, order or offer as they apply to the dissenting shareholder. The court may, on an application, make such order as it thinks fit. This may include one providing for a variation so as to require payment of a cash consideration to the dissenting shareholder.
A call notice and information notice is signed on behalf of the offeror and given to the shareholder at the address on the register of members or by leaving it or sending it by post. It may be sent by electronic means where the shareholder has consented to its use and has not withdrawn this consent. Call notices may be given to the first named shareholder of joint holdings and given to personal representatives and trustee in bankruptcy are valid. Similar methods of service apply.
Where the offeror has become bound to acquire the dissenting shareholders’ shares, it shall within 30 days deliver to the offeree company,
- a copy of the call notices and information notices given;
- a list of the persons served with call notices or information
- an instrument of transfer of the shares of the dissenting shareholders executed on their behalf by any person appointed by the offeror; and
- shall pay and vest in the offeree company the consideration payable for the beneficial ownership of the shares.
The offeree company must then register the person who executed the instrument as transferee as owner and must retain the sums received in a separate bank account for a period of seven years on trust for the person entitled to those proceeds. After the expiry of seven years, they are to be transferred to the Minister for Public Expenditure, who shall indemnify the company in respect of any unclaimed sum.
For so long as the shares are vested in the offeree company (where shares in the offeror are part of the consideration), it is restricted in exercising rights conferred by the shares
Schemes of Arrangement I
Schemes of arrangement and reconstruction provisions have been used in the United Kingdom in order to facilitate the restructuring of companies. Because they are not an insolvency processes as such, they are not subject to the EU Insolvency Regulation, by which the proceedings must be taken in a particular jurisdiction and by which secondary proceedings may be opened in another jurisdiction.
The court has considerable flexibility and discretion in approving schemes, notwithstanding the objections of creditors. The courts have taken the view that creditors who have no financial interest should not generally be entitled to veto arrangements. The discretion has been exercised to approve schemes which have sufficient support, notwithstanding that other creditors may be disadvantaged. That arrangement can take place without the reputational risk of insolvency proceedings.
Schemes of Arrangement II
The 2014 Act procedures in relation to arrangements and reconstructions, simplify the former procedures. Court consent is not required to convene the meetings of shareholders and creditors. They are convened by the directors. Meetings of various classes may be convened, as required.
The application may be made to court where the directors have not convened the initial meetings. This may be appropriate where a member or creditor initiates the procedure. The court may put a stay on legal proceedings. This may be indefinite.
The provision in the earlier legislation requiring a second court hearing in relation to the passing of the scheme has been removed. There is now a single hearing.
The simplified scheme may represent an alternative to examination. There is no requirement for an independent report. It is not required that there be a reasonable prospect that the company survive. The stigma of insolvency and the whole range of implications that follow from insolvency, do not apply. The court has considerable discretion in approving a scheme.
References and Sources
Companies Act 2014 S.449 to 459 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Ch.22 Courtney
Keane on Company Law 5th Ed. (2016) Ch.32 Hutchinson
Other Irish Sources
Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury
Introduction to Irish Company Law 4th Ed. (2015) Callanan
Bloomsbury’s Guide to the Companies Act 2015 Courtney & Ors
Company Law in Ireland 2nd Ed. (2015) Thuillier
Pre-2014 Legislation Editions
Modern Irish Company Law 2nd Ed. (2001) Ellis
Cases & Materials Company Law 2nd Ed. (1998) Forde
Company Law 4th Ed. (2008) Forde & Kennedy
Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy
Companies Acts 1963-2012 (2012) MacCann & Courtney
Constitutional Rights of Companies (2007) O’Neill
Court Applications Under the Companies Act (2013) Samad
Company Law – Nutshell 3rd Ed. (2013) McConville
Questions & Answers on Company Law (2008) McGrath, N & Murphy
Make That Grade Irish Company Law 5th Ed. (2015) Murphy
Company Law BELR Series (2015) O’Mahony
Companies Act 2006 (UK) (Legilsation.gov.uk)
Statute books Blackstone’s statutes on company law (OUP)
Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington
Company Law in Context 2nd Ed. (2012) D Kershaw
Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam
Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington
UK Practitioners Services
Tolley’s Company Law Handbook
Palmer’s Company Law