By Maliha Zia
There are 4 different ways through which a company can be restructured, namely; winding up, merger, demerger, and amalgamation. The process of corporate restructuring through the Courts is explained below.
WINDING UP OF A COMPANY
Under Section 297 of the Companies Ordinance, 1984 (the “Ordinance”), as well as Section 293 of the Companies Act, 2017 (the “Act”), a company may be wound up by the Court directly, or through a petition, or under the supervision of the Court.
Reasons For Winding Up
Under Section 305 of the Ordinance and Section 301 of the Act a company may be wound up (a) if the company has, by special resolution, resolved that the company be wound up by the Court; (b) if default is made in delivering the statutory report to the registrar or in holding the statutory meeting or any two consecutive annual general meetings; (c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year; (d) if the number of members is reduced, in the case of private company, below two or, in the case of any other company, below seven; (e) if the company is unable to pay its debts; (f) if the company is- (i) conceived or brought forth for, or is or has been carrying on, unlawful or fraudulent activities; (ii) carrying on business not authorised by the memorandum; (iii) conducting its business in a manner oppressive to any of its members or persons concerned with the formation or promotion of the company or the minority shareholders; (iv) run and managed by persons who fail to maintain proper and true accounts, or commit fraud, misfeasance or malfeasance in relation to the company; or (v) managed by persons who refuse to act according to the requirements of the memorandum or articles or the provisions of this Ordinance or fail to carry out the directions or decisions of the Court or the registrar or the Commission given in the exercise of powers under this Ordinance; Companies Ordinance, 1984 (g) if, being a listed company, it ceases to be such company; or (h) if the Court is of opinion that it is just and equitable that the company should be wound up; (i) if a company ceases to have a member.
Petition For Winding Up
If a company’s members or creditors prefer to approach the Court for winding up of the company, then as per Rule 75 of the Companies (Court) Rules, 1997 (the “Rules”), a petition has to be made on Form No.24, 25 or 26 as given in the Rules and shall be presented in duplicate to the Registrar who shall enter on the petition the date of its presentation.
Method Of Advertisement
Once a petition is filed, it is then fixed before a Judge for hearing, and advertisements have to be published in newspapers, in a manner as prescribed under Form No. 27 to inform the public at large as well as any and all members and creditors. Moreover, it is also necessary to inform the Securities and Exchange Commission of Pakistan (the “Authority”).
Order Of The Court
Once the Court is satisfied that winding up of the company is necessary, and no parties i.e. members, creditors, or the Authority have any contentions with regards to the same, the Court may pass an order for winding up. As per Rule 87, after the order for winding up of a company has been made by the Court, the order under the seal of the Court with the copy of the petition, and any affidavits filed therein, shall be sent to the Provisional Manager and/or official liquidator who shall oversee the process of winding up. Subsequently, an intimation needs to be made to the Registrar of Companies about the appointment of an official liquidator.
MERGER, DEMERGER, AMALGAMATION
Definitions
A Merger is when two existing, independent companies merge to form one single entity and operate as either of the existing companies whereas a Demerger is when a single entity is divided into two or more entities to function separately or be sold off, and an Amalgamation is when two or more companies or their specific units are combined into one unit, and a new company is formed with a completely new name.
Scheme Of Arrangement
If and when the members of a company decide that there is a need for corporate restructuring, a Scheme of Arrangement has to be made by the company which shall include details of every asset, liability, and any other matter pertaining to the corporate restructuring of the company.
Application For Sanctioning A Compromise/Agreement
Subsequently, the company has to make an application under Section 284 of the Ordinance or Section 279 of the Act to the Court for sanctioning a compromise or an arrangement between the company and its shareholders and creditors. And for the purposes of the same, an interlocutory application has to be made as per Rule 55.
Important Sections For Corporate Restructuring
An application under Section 284 of the Ordinance is read with Sections 285 to 288 whereby;
I. Section 285 mentions about the powers of the Court to enforce a compromise or an arrangement;
II. Section 286 states the method of sending notices to members and/or creditors;
III. Under Section 287, the compromise or arrangement is to be based on a scheme of arrangement and the Court has to see whether the scheme is just and fair, and further discusses the matters court can make provisions for in the order such as transfer of property and liabilities, legal proceedings, dissolution without winding up, any other consequential, incidental, and supplemental matters;
IV. Section 288 provides that a notice has to be given to the registrar for applications under section 284 and 287, and the Court shall give notice to the registrar of every application made to it under section 284 to 287.
Conducting A Meeting
As per Rule 59, the result of a meeting held in accordance with Section 284 of the Ordinance and Section 279 of the Act, has to be decided by a poll whereby three-fourths in value of the creditors or class of creditors, or members present and voting either in person or, where proxies are allowed, by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court be binding on the company, all its creditors, all the members, the liquidators and the contributories of the company, and within 7 days of the meeting, the Chairman of the meeting has to present the report to the Court as given under Rule 57.
Report By Chairman
Under Rule 60 of the Rules if a compromise or arrangement between the members and creditors of a company is agreed to, then within 7 days of filing of report by the Chairman, the company has to present a petition under form No. 19 to the Court for confirmation of the compromise or arrangement.
Order Of The Court
Once the Court is satisfied that all procedures are complied with, all concerns of the Authority and creditors are addressed and resolved, and the merger, demerger, or amalgamation is not against the public interest or in violation of any law, then the Court may pass an order for the merger, demerger, or amalgamation along with any other directions as the Court deems fit.
(The relevant sections under the Act are sections 279, 280, 281, 282, and 283, that have the same provisions as given under the Companies Ordinance, 1984).
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