As an alternative to liquidation, the directors (or a creditor, liquidator, receiver or shareholder), can propose a creditors compromise to repay a percentage of the debts the business owes over an agreed timeframe, so it can continue operating, to achieve a better outcome than a liquidation of the company.
A compromise is a means by which an indebted company may reach an arrangement with its creditors to pay them less than the full amount owing or to pay the amount owing over an extended period of time in full and final settlement of the debts covered by the compromise proposal.
The compromise document is usually prepared by an accountant and is issued to creditors to consider and vote on at a formal meeting of creditors. The creditors meeting can be held by way of a physical meeting or postal vote. The compromise will take effect if it is approved by creditors holding at least 75% of the monetary value of the company’s debt.
The compromise is binding on all creditors and prevents any one of them from applying to the High Court for the company to be liquidated.