Meaning of Compromise

‘Compromise’ means an amicable settlement of differences by mutual concessions by the parties to dispute or difference by agreeing not to try it out. In Sneath Vs. Valley Gold Ltd. [1983]1 Ch. 447, ‘Compromise’, was described as an agreement terminating a dispute between parties as to the rights of one or more of therr., or modifying the undoubted rights of a party which he has difficulty in enforcing.

The result of this case and others’ is that there can be no compromise unless there is some dispute, e.g., as to the power to enforce rights or as to what those rights are.

Meaning of Arrangement

An ‘Arrangement’, as the expression is used in the Companies Act, 1956, embraces a far wider class of agreements than a ‘Compromise’. It includes agreements which modify rights about which there is no dispute. Thus, ‘Arrangement’ includes a reorganisation of the share capital of the company by the consolidation of shares of different classes, or by division of shares into shares of different classes or by both these methods. An arrangement may also involve: (i) Debenture holders being given an extension of time for equity shares in a new company; (ii) the creditors agreeing to receive cash in part payment of the claims and the balance in shares or debentures of the company; CUi) the preference shareholers giving up their rights to arrears of dividends, further agreeing to accept a reduced rate of dividend in the future, and so on.

Thus, when a company has a dispute with a member or a class of members or with a creditor or a class of them, a scheme of compromise may be drawn up. But, where there is no dispute but there is need for readjusting the rights or liabilities of a member or a class of them or of a creditor or a class of them, the company may resort to a scheme of arrangement with them. Section 390 provides that “the expression ‘arrangement’ includes a reorganisation of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into shares of different classes, or by both these methods.”