A part 14 compromise is an opportunity for an insolvent company to continue. Although the company may not be able to pay back its debt in full, it allows the company to provide ongoing business to creditors and a chance to save a good business trapped in an insolvent company.
Examples of compromises that could be agreed on include:
- Cancelling all or part of debt
- Varying the rights of creditors or terms of debt
Companies that can benefit from this arrangement are usually businesses that are fundamentally sound, but have taken on a recent setback and still have the support of its creditors to continue.
Procedure
Once there is reason to believe that a company is unable, or will be unable, to pay its debts, the board of directors, or an appointed liquidator or receiver, may propose a compromise.
The Process
- Company seeks professional advice
The company can engage a professional firm to explore and assess the possibility of a compromise. - Compromise to creditors
The proposer prepares and distributes the compromise to all the creditors with the assistance of a professional if engaged. - Creditors meeting
A creditors meeting is called, and the compromise is voted on. Once the compromise is put to the creditors for consideration, the creditors must vote to approve the compromise. For the compromise to be accepted there must be a majority in number and 75% in total value of the creditors voting for it. - Approval by the board
Once the compromise is voted on and passes, the board will ratify the proposal and carry out its obligations under the proposed terms. There is often a compromise manager appointed to maintain the compromise or possibly make payments or distributions to creditors.
Why Waterstone?
Putting a Compromise together that will satisfy both the creditors and the business is not an easy task. Waterstone is experienced in drafting compromises, running creditors meetings and engaging with the creditors and stakeholders.
Book a free consultation with our team today and we can assist you in determining whether a part 14 compromise is the appropriate way forward your business.