A Section 230 scheme is not confined to mergers and demergers. It is a general compromise and arrangement provision, and it is available for a corporate debt restructuring in which the company proposes a compromise with its creditors—a haircut, a rescheduling, a conversion of debt into equity, or a combination. The scheme is class-based and consensual, and it binds only the classes that approve it and the dissentients within those classes.
The Creditor Classification
The company must identify each class of creditors—secured creditors, unsecured financial creditors, operational creditors, and so on—and convene a separate meeting for each class. The scheme must be approved by a majority of persons representing three-fourths in value of the creditors present and voting in each class. The classification is critical: a scheme that does not convene a class that is affected by the compromise is vulnerable to challenge.
The Negotiation
The negotiation with the creditors is the heart of the restructuring. The company must present a credible business plan, a realistic repayment schedule, and a fair treatment of each class. The secured creditors will focus on the security and the recovery, the unsecured creditors on the pari passu treatment, and the operational creditors on the continuity of the supply.
The NCLT Process
The scheme is filed with the NCLT under Section 230, and the Tribunal convenes the class meetings. The chairperson's report is filed after the meetings, and the second motion is filed for the sanction. The NCLT examines the scheme on merits, hears the objections, and may sanction it with or without modifications.
The Limits
The scheme route is not available during the CIRP in the absence of a liquidation order. A company that is in financial distress must choose between the IBC route and the Section 230 route at the threshold. The Section 230 route is a consensual arrangement that requires the active support of the creditors, and it is available only where the company is not already in CIRP.
Call to Action
Anuj Desai & Associates advises companies and creditor groups on debt restructuring through a Section 230 scheme—from the creditor classification and the negotiation to the class meetings and the NCLT sanction. If your company is considering a compromise with creditors, we can help you structure a scheme that wins the creditors' support.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
🔗 linkedin.com/in/ca-anuj-desai-122547230
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