The compromise of creditors is dealt with in terms of Section 155 of the Companies Act, 2008. In essence, the law provides for the company applying irrespective of whether or not it is financially distressed to the creditors or a class of creditors for them to consider a compromise of their claim. The proposal drawn must be sent to all known creditors. The proposal must have projected balance sheets and must include a notice of any significant assumptions on which it is based. It must also contain a certificate by an authorised director to the effect that the factual information provided is correct, complete and up to date and that the projections provided are estimates made in good faith on the basis of factual information and assumptions as set out in the statement.
The proposal contemplated must be adopted by at least 75% of the value of creditors or class as the case may be of those creditors present and voting in person or by proxy at any meeting called for that particular purpose.
If 75% value of the creditors is obtained the company may apply to court for an order approving the proposal and the court will then consider this and if the court sanctions the compromise a copy of the court order must be filed by the company within 5 days and must be attached to each copy of the company’s memorandum of incorporation and must be kept at the company’s registered office. The order will be binding on all creditors or members of the relevant class of creditors as at the date on which it is filed whether or not those creditors voted in favour of the compromise or not.