Corporate Restructuring – Compromises, Arrangements, Reconstructions, and Amalgamations

Due to various factors, a company is likely to engage in restructuring processes. This includes the reorganisation of the company’s share capital through consolidation or division of shares. These terminologies are under the Companies Act, particularly under Part XXXIV. It refers to a compromise or arrangement between a company and its creditors, or any class of its creditors; or between the company and its members, or any class of creditors.

The company, a member, creditor, the liquidator, or administrator may seek the Court to issue orders to have meetings set. After issuance of an order, the issuance of a notice to the relevant parties follows.

If the present – or by proxy – parties come up with a compromise or arrangement that gets support by at least 75% of the creditors or class of creditors, members or class of members may be sanctioned by the Court. The compromise or arrangement sanctioned by the Court becomes binding; and only becomes effective once it is lodged with the Registrar of Companies.

The companies affected by the Court order will require to file the Court order with the Registrar of Companies. This must take place within seven days after the Court making that order.

The Court, while sanctioning the compromise or arrangement, or a subsequent order, may provide on issues touching on the transfer of property or liabilities; allotment or appropriation of shares, debentures, policies or similar interests; continuation by or against the transferee company of any legal proceedings; or dissolution, without liquidation, of the transferor as the Court deems fit. The property, under this process, vests free from all charges and security rights.

As a result of the sanctioning, there are chances that the Court orders might amend: the Articles of Association; resolutions or agreements of or affecting the company. In the event this occurs, the company will require to annex the Court order to the Articles of Association, save where the Court orders are incorporated in the Articles of Association as amendments.

If the company fails to comply, the company and each officer of the company, in default, commit an offence. On conviction, there is a fine not exceeding Kenya Shillings One Hundred Thousand. If upon conviction, the company or officer is still in default, it will be an offence each day there is non-compliance; and, upon conviction, each will be liable to a fine not exceeding Kenya Shillings Ten Thousand.