Key Post Affordable restructuring for small companies - Section 279

If a company is insolvent, it can do an informal scheme of arrangement in which it gets its creditors to accept a write down of some of the money due. There is a good article on the topic on the [broken link removed] website.

But what is news to me is that under Section 279 of the Companies Act 1963, if a company can come to an arrangement which gets the support of 75% of its creditors by number and value, it can force the other 25% to accept the deal.

279.—(1) Any arrangement entered into between a company about to be, or in the course of being, wound up and its creditors shall, subject to the right of appeal under this section, be binding on the company if sanctioned by a special resolution and on the creditors if acceded to by three-fourths in number and value of the creditors.

(2) Any creditor or contributory may, within 3 weeks from the completion of the arrangement, appeal to the court against it, and the court may thereupon, as it thinks just, amend, vary or confirm the arrangement.

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So if a company has assets of €50,000 and creditors of €100,000 it can offer to pay all its creditors 50 cents in the euro and if 75% agree, then it's binding on the rest.

The company is then solvent and can be simply struck off without the costs of appointing a liquidator.

I could find very little online about it. This is the [broken link removed] I have come up with.

I have loads of questions
How often is it used?
How often is it challenged in the courts?
Do you have to pay all creditors the same percentage?
Presumably you can treat secured and preferential creditors preferentially.
What does Revenue think of such schemes?
What are the obstacles?
Does the company have to be wound up? Can it start off again?
Can you do a side deal with a particular creditor e.g. a bank for which you have guaranteed the overdraft

Hi Brendan,

Section 279 is not used enough in my opinion! Companies should try it more often especially in the current climate. However I think you might misunderstand the purpose of the scheme. It can only be used if it can be shown that if the scheme is not approved that the company will be forced into liquidation and that the creditors will be materially worse of in a liquidation scenerio.

The scheme is designed to enable the company to survive. So it would be wrong to use it in order to get a nil balance sheet. The advandage to creditors is that they receive x percent but also keep a client.

An informal scheme of arrangement will still incur professional fees so to look at it as a possibly cheaper way of winding the company down is wrong.

So companies need to consider the scheme as a way of getting a second chance in order to continue trading.

Each class of creditor must receive payments on a pro rata basis. For this reason you are correct in assumin that secured and preferential creditors must receive payment in full as this is what they would get in a liquidation.

The revenue are preferential so i dont see why they would object.

I am not aware of a creditor challenging a scheme, perhaps this is because the High Court is too expensive.

The biggest problem is getting unsecured creditors to accept a discount!

Hope this helps.

Here is an article on the topic, kindly supplied by Bill Holohan, solicitor of [broken link removed]


1. They could convene a meeting of creditors with a view to appointing a Liquidator.

2. They could consider an alternative arrangement under Section 201 or Section 279.

Under Section 279 any arrangement entered into between a company which is about to be or was in the course of being wound up, on the one hand, and its creditors on the other hand, is to be binding on the Company if sanctioned by a Special Resolution of the Company, and is to be binding on the creditors, if acceded to by three fourths in number and value of the creditors.

At the very least any communications should be prefaced by a telephone call and followed up by an email or postal letter with the relevant information. The Directors should produce a one page document summarising the position which they could circulate to the creditors of the Company. Ideally there should be some form of independent validation of the financial situation and a Statement of Affairs or some form of Management Accounts produced and validated by the auditors, even if it would not be possible to produce audited accounts within a short period of days.

In relation to the question of disgruntled or dissatisfied creditors and what action they could take, it is open to any creditor at any time to reject the proposals being put by the company and to seek to take legal action and / or issue a winding up petition, but it is necessary, in practice, for a creditor to have an unsatisfied judgment or undisputable debt.

Once sanctioned by the requisite majority of three fourths in value in number, it is binding on all creditors. There is a right of appeal to the High Court within three weeks from the conclusion of the arrangement, and the Court had a power to vary it.

Alternatively, under Section 201 of the Companies Act, there was a provision whereby when an arrangement is proposed between a company and its creditors and any class of them the Court could, on application, order a meeting to be summoned and proceedings would be stayed pending the convening of the meeting and again if a majority in number representing three fourths in value of the creditors or class of creditors present and voting in person or by proxy at the meeting vote in favour of the resolution, then, subject to Court approval, the compromise would be binding on all creditors or class of creditors and on the Company. Obviously there would be an expense involved in such an application to Court.

Ideally the cheapest and most cost effective way of doing it was to go the Section 201 route.

In discussing the matter with any of the creditors, directors should highlight the fact that the likely outcome in the event of liquidation would be a nil or low dividend for unsecured creditors, (if that be the case), whereas if they agreed to a write down of the liability to enable a scheme to be put together, this will result in them receiving something and within a few months, rather than nothing at all.

Companies Act, 1963

Compromise between company and its members or creditors.

201.—(1) Where a compromise or arrangement is proposed between a company and its creditors or any class of them or between the company and its members or any class of them, the court may, on the application of the company or of any creditor or member of the company, or, in the case of a company being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members of the company or class of members, as the case may be, to be summoned in such manner as the court directs.
(2) Whenever such an application as is mentioned in subsection (1) is made, the court may on such terms as seem just, stay all proceedings or restrain further proceedings against the company for such period as to the court seems fit.
(3) If a majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members, as the case may be, present and voting either in person or by proxy at the meeting, vote in favour of a resolution agreeing to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors or the class of creditors, or on the members or class of members, as the case may be, and also on the company or, in the case of a company in the course of being wound up, on the liquidator and contributories of the company.
(4) Section 144 shall apply to any such resolution as is mentioned in subsection (3) which is passed at any adjourned meeting held under this section.
(5) An order made under subsection (3) shall have no effect until an office copy of the order has been delivered to the registrar of companies for registration, and a copy of every such order shall be annexed to every copy of the memorandum of the company issued after the order has been made, or, in the case of a company not having a memorandum, of every copy so issued of the instrument constituting or defining the constitution of the company.
(6) If a company fails to comply with subsection (5), the company and every officer of the company who is in default shall be liable to a fine not exceeding £20.
(7) In this section and in section 202, "company" means any company liable to be wound up under this Act, and "arrangement" includes a reorganisation of the share capital of the company by the consolidation of shares of different classes or by the division of shares into shares of different classes or by both those methods.
Provisions as to arrangement binding creditors.
279.—(1) Any arrangement entered into between a company about to be, or in the course of being, wound up and its creditors shall, subject to the right of appeal under this section, be binding on the company if sanctioned by a special resolution and on the creditors if acceded to by three-fourths in number and value of the creditors.
(2) Any creditor or contributory may, within 3 weeks from the completion of the arrangement, appeal to the court against it, and the court may thereupon, as it thinks just, amend, vary or confirm the arrangement.

A customer notified me yesterday that they are proposing a scheme of arrangement pursuant to S201. I have heard this morning that a receiver has been appointed. Where does this leave the proposed scheme of arrangement?

Thanks