Company Law; The Advantages of Section 176 Companies Act 1965

September 6, 2017 Law



As a general lineation, S. 176 of Companies Act 1965 [ 1 ] trades with strategies of agreement of companies confronting fiscal troubles or in the instance of companies at the threshold of winding-up. What is, “Schemes of Arrangement” , and how make these strategies assist or facilitate the companies during fiscal troubles? To specify in simple footings, “Schemes of Arrangement” refer to intrigue that enable companies in fiscal troubles to pay out to their creditors in full. Therefore, companies enter into strategies or agreements with creditors to set into consequence a via media or a moratorium. What is a “moratorium? ” A “moratorium” can be defined to 2 things:

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  1. A impermanent prohibition on an activity ;
  2. From the legal facet, it means an authorised hold of legal duties or payment. [ 2 ]

Therefore, the term “moratorium” is used to demo that a impermanent postponement of payment by the companies in debt to their creditors is, lawfully allowed – by the leave of Court. A via media strategy, nevertheless, is the type of strategy whereby the creditors agree to accept payment of less than the sum that is owed to them. [ 3 ] In other words, one time the compromised sum is paid, the company is released from any farther duties or debt towards the creditors. In certain occasions, the creditors may besides compromise to change over their debts into portions in the company. [ 4 ] Therefore, it is on the understanding of the companies and their creditors to find which strategy or agreement suits best for both parties.


Now, concentrating on the chief issue, how does S. 176 of CA 1965 really facilitates or aids companies which are confronting fiscal troubles, into come ining strategies of agreement? The reply would be because S. 176 Acts of the Apostless as a mechanism, or as a tool which binds a formal via media( companies may pay less than the sum owed to creditors upon understanding by both parties )or moratorium( suspension or hold or postponement of payment for a specified period of clip to their creditors )between the participants every bit long as an understanding by the bulk of the members have been achieved and, capable to blessing by the tribunal. In short, when a company and its creditors agree to come in a strategy of agreement, S. 176 comes in to ease both parties by: Binding both parties one time a bulk ballot is achieved and obtaining blessing from the tribunal to allow leave for the strategy of agreement.

S. 176 can besides be read together with S. 178 [ 5 ] and S. 180 [ 6 ] as S. 178 sets out the orders that the tribunal can do to set into consequence a strategy for the Reconstruction of any company or companies or the merger of any 2 or more companies. As stated under S. 178 ( 1 ) :

“…Where an application is made to the Court … for the blessing of a via media or agreement and it is shown to the Court that the via media or agreement had ben proposed, for the intent of, or in connexion with a strategy for Reconstruction of any company or companies, or the merger of any 2 or more companies … … the Court may, either by manner of the via media or agreement or, by subsequent order provide for all or any the undermentioned affairs …”[ 7 ]

Therefore, what S. 178 provides is really the demands or the order the tribunal may bespeak in order to do the strategy or via media to be effected. S. 180 on the other manus sets out the processs that enable the transferee company to compulsory get the portions of a dissenting stockholder to a strategy or a contract that involves the transportation of all portions in a peculiar category in the transferor company to the transferee company. [ 8 ]


In a nutshell, it can be said that the strategy of agreement saves companies from bankruptcy by giving a opportunity to the companies to pay their debt to their creditors or unsecured bond holders. Therefore, as clearly stated above, it’s clear to state that the companies confronting fiscal troubles should profit most from S. 176 CA. This is because the chief intent of S. 176 CA is to reconstitute the fiscal personal businesss of a company which is to a great extent burdened with debts. Therefore, when S. 176 comes in as a salvaging proviso for companies in debt, it eases both the company and their creditors.

However, every bit much as the company may have benefits from S. 176, there are fortunes where companies may misapply the proviso for the ain benefit. Therefore the jurisprudence should supply a safeguard proviso for the creditors every bit good. We must bear in head that the chief focal point of S. 176 is to ease the load of the companies who are genuinely in a fiscal crisis. The advantages at the terminal of the strategy of agreement should be of that the companies are able to transport on their concern finally as usual, and non let go of themselves from liability of paying the debts they owe to their creditors.


The jurisprudence and its relation to the strategy of agreement is governed by S. 176 CA. As stated earlier in the general regulation, when a company is shortly to travel belly-up or winding-up, S. 176 CA Acts of the Apostless as a mechanism and as a tool to protect the company and help them in paying their debt of to their creditors. S. 176 CA provides that a strategy of agreement of either a via media or a strategy may be put into consequence and therefore, assisting both the company – to go on their concern as usual – and to pay the creditors back – the money owed to them. How does the jurisprudence apply or what are the cases where S. 176 CA were applied?

First and first, when a company wishes to make a via media or a strategy, the company itself – the member of the company or member of a category or the creditor – to do an application to the Court. For case, in the landmark instance ofRe Foursea Construction ( M ) Sdn Bhd[ 9 ] , the tribunal held that and application of agreement for ex-parte is non allowed as it must be in the signifier of both parties being present and active in order to avoid unfairness particularly towards the creditors. In other words, for an application of strategy of agreement, the Court shall non allow the application if there is merely one party that applies to the Court. It must be applied from both parties – the company and the Creditor.

However, with every general regulation, there is besides an exclusion. In this instance, a circumstance where the Courtmaylet an ex-parte application is when there is a sense of valid urgency that exists. The application of ex parte is seen in the instance ofPECD Bhd & A ; Anor v Merino-Odd Sdn Bhd & A ; Ors[ 10 ] where the appliers filed an ex-parte application, and the application ismerelyfor exceeding instances of ‘valid urgency’ . Therefore, the appliers have a important responsibility to unwrapallrelevant stuffs including any information that may be unfavourable to the applicants’ themselves. The tribunal will, purely compel the appliers to follow this demand.

However, in this instance, in order to obtain the ex-parte order, the appliers did non sufficiently place all their supporting paperss that need to be disclosed. As a consequence, the tribunal held, since the regulation of carnival and blunt revelation should be practiced by the appliers in this instance, the applicants’ failure to unwrap the topic affair and determination of the old tribunal which did non prefer them was really against the rule of revelation. [ 11 ] It was found and proven the appliers had actedmala fideand the justice set aside the ex-parte application and his keeping order under S. 176 of CA 1965.


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