Scheme of arrangement (Section 176)
Section 176 is basically a machinery provision.
The machinery of section 176 is necessary in order to enable, in a practical sense, all of the numerous class of creditors to be bound by the compromise or arrangement between a company and its creditors.
In a scheme of arrangement, there is no difference between a contingent creditor and a judgement creditor. A contingent creditor is a creditor who has not commenced proceedings to claim the amount owed to him or her. A judgement creditor is a creditor who has obtained a judgement against his/her debtor under which he/she can enforce execution.
1. Application to Court
The company, any creditor, any member or, if the company is in the course of being wound up, the liquidator may apply for the order to hold a meeting proposing the scheme of arrangement under Section 176. At the meeting, the agreement to the proposed scheme must be approved by a majority in number representing three-fourths in value of the creditors or class of creditors, or members or class of members present and voting either in person or by proxy. Thereafter, the applicant can petition for Section 176 to have the Court ascertain that the requirements of that order have been complied with and the required majority obtained, and if those matters are in order, to approve the scheme.
2. The Notice of Commencing the Meeting
NOTICE is hereby given that by an order of the Court, made on the ____________ 20______ a meeting of unsecured creditors of the company whose debts or claims arose on or before the ____________ 20______ will be held in the Board Room of ____________ at ____________ o’clock in the forenoon on the ____________ 20______ for the purpose of considering and if thought fit approving, with or without modification, a scheme of arrangement between the company and such unsecured creditors. Creditors may attend the meeting and vote by personal vote or by proxies. A form of proxy, copy of the scheme of arrangement, statement of affairs, and statement pursuant to s 177 of the Companies Act are enclosed herewith.
The Court has appointed ____________ of Chartered Accountant, or failing him, ____________ of Chartered Accountant to be chairman of the said meeting.
The scheme is subject to the subsequent approval of the Court.
Proxies should be delivered or sent to the offices of ____________ no later than the ____________ 20______ .
NOTICE is hereby further given that in the event that a majority in number, representing three-fourths in value of those unsecured creditors present and voting (whether in person or by proxy) at the meeting, resolves that the scheme be approved either with or without modification, a petition for an order for approval of the said scheme will be presented to the High Court of ____________ and that the said petition will be set down to be heard, etc.
Any creditor or contributory of the company who desire to support or oppose the making of an order on the petition may appear at the time of hearing, or his or her Counsel or Solicitor for that purpose and a copy of the petition will be furnished to any creditor or contributory of the company requiring the same by the undersigned on payment of the regulated charge.
a. Lodgement of copy
The office copy of the Court order is need to be lodged with the Registrar of Companies. Failure to do so would render the Court order approving the scheme to be of no effect as the Court order approving the scheme of arrangement takes effect on and from the date of lodgement (or such earlier date as the court may determine or as the order may specify).
b. Annexed to memorandum
A copy of every court order to approve a scheme must be annexed to every copy of the company’s memorandum issued after the date of the order.
(If the company has no memorandum, the copy must be annexed to the company’s constitution or other constituent document.) The court may exempt a company from having to comply with the provisions.
c. Directors to call for reports (before court-ordered meeting) (Section 176(8) CA).
Once a compromise or arrangement has been proposed, the directors are to note to:
i. instruct the company’s accountants or solicitors (or both) as named in the members’ resolution, to report on the proposals and forward such report to the directors as soon as may be, and
ii. make such reports available at the company’s registered office for
inspection by shareholders and creditors at least seven days before any meeting ordered by the court.