Implied Power to Compromise/Arrangement

Companies may need to enter into agreements compromising claims or modifying rights which other persons have against them, or which they have against other persons. A company has an implied power to compromise disputes in which it is involved with outsiders or with its own members-Re Norwich Provident Insurance Society, Bath’s case [1878] 8 Ch. D 384, and it probably also has implied power to enter into arrangements with such persons modifying the undoubted rights which they or the company has: In any case, the express power to do these things is usually inserted in objects clause of its Memorandum of Association as one of the standard provisions. The reason why the subject of compromises and arrangements is deserving a separate treatment is that rights enforceable against companies are often vested in large classes of persons with whom it would be practically impossible to negotiate individually, and in such cases a machinery is required by which the claims of the classes collectively may be compromised or their rights modified with the assent of a majority of their number given at meetings called for the purpose:”

This machinery may be provided by the original agreements between the company and the classes of persons entitled to the rights, but whether such machinery is provided by agreement or not, it is provided by the Companies Act. 1956.

Procedure

The Companies Act, 1956 empowers a company to make compromise or arrangement with its creditors (or any class of them) or members (or any class of them) and makes suitable provisions under Sections 391 to 393.