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Compromise (Section 311 of the Companies Act)


A: The purpose of a Section 311 compromise is to reach a binding agreement between the shareholders and creditors of the company with a view to modify their claims against the company in the common interest of all parties concerned. Section 311 therefore creates the machinery which enables the company to negotiate with members of a group of shareholders and / or creditors collectively and combine all the members of that group to the agreement reached by the majority of members of that group. The main aim is to rearrange a company’s liabilities. This mechanism is normally used by rather big companies. The compromise must be agreed upon by a majority in number of creditors who must represent at least 75% in value of the debt owed by the company. Furthermore, at least 75% of the shareholders must agree to the arrangement. A scheme can take many forms. Even companies who are not insolvent can apply for Section 311 if this would help the company to become more profitable. It is a rather involved process and we will advise you on this.

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