COMPROMISE, ARRANGEMENT OR RECONSTRUCTION OF LIMITED LIABILITY PARTNERSHIPS

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

     The present industrial scenario in the international environment witnesses many a reconstruction of the companies by means of merger, amalgamations, take over etc.,   The role of Indian industries is commendable in the last two years.  As Limited Liability Partnership ('LLP' for short) is an alternative to the corporate sector, the Government felt it necessary to incorporate the provisions in the LLP bill in regard to compromise, arrangement or reconstruction of LLP.   The terms 'compromise', 'arrangement' has not been defined in the LLP bill.  Since Sec.2(2) provides that words and expressions used and not defined in this Act but defined in the Companies Act, 1956 shall have the meanings respectively assigned to them in that Act, we may take the meaning for them provided in the Companies Act.

COMPROMISE, ARRANGEMENT OR RECONSTRUCTION:

     Chapter XII of the LLP bill deals with the compromise, arrangement or reconstruction of LLP in Sec.60, Sec. 61 and Sec.62.   

     On the application of the LLP, or any creditor or partner of the LLP or in the case of  a LLP which is being wound up, of the liquidator for the proposal for a compromise or arrangement is made between a LLP and its creditors or between a LLP and its partners, the Tribunal may order a meeting of the creditors or of the partners, as the case may be, to be called, held and conducted in such manner as may be prescribed or as the Tribunal directs.

     At the meeting if a majority representing three fourths in value of the creditors or partners, as the case may be, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Tribunal, by order be binding on all the creditors or all the partners, as the case may be, and also on the LLP, or in the case of LLP which is being wound up, on the liquidator and contributories of the LLP.

     Before sanctioning any compromise or arrangement, the tribunal is to satisfy that the LLP or any other person by whom an application has been filed has disclosed to the tribunal, by affidavit or otherwise, all material facts relating to the LLP including the latest financial position of the LLP and the pendency of any investigation proceedings in relation to the LLP.

     The LLP shall filed the order made by the Tribunal with the Registrar within thirty days after making such an order and shall have effect after it is so filed.   If default is made the LLP and every designated partner of the LLP shall be punishable with fine which may extend to one lakh rupees.

POWERS OF THE TRIBUNAL:

     The tribunal in sanctioning the compromise or an arrangement in respect of a LLP is having the power to supervise the carrying out of the compromise or an arrangement and it may at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement.

     The tribunal, if it is satisfied that the sanctioned compromise or arrangement cannot be worked satisfactorily with or without modifications, may either on its own motion or on the application of any person interested in the affairs of the LLP, make such an order for winding up the LLP and such an order shall be deemed to be an order made under the provisions for winding up.

PROVISIONS FOR FACILITATING RECONSTRUCTION OF AMALGAMATION OF LLP:

     Where an application is made to the Tribunal for sanctioning of a compromise or arrangement proposed between a LLP and any such persons and it is shown to the tribunal that-

Compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any LLP or LLPs or the amalgamation of any two or more LLPs; and

Under the scheme the whole or any part of the undertaking, property or liabilities of any LLP concerned in the scheme is to be transferred to another LLP

The tribunal may, either by order sanctioning the compromise or arrangement or by a subsequent order, make provisions for all or any of the following matters:

Ø      The transfer to the transferee LLP of the whole or any part of the undertaking, property or liabilities of any transferor LLP;

Ø      The continuation by or against the transferee LLP of any legal proceedings pending by or against any transferor LLP;

Ø      The dissolution, without winding up, of any transferor LLP;

Ø      The provision to be made for any person who, within such time and in such manner as the tribunal directs, dissents from the compromise or arrangement; and

Ø      Such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out.

No compromise or arrangement shall be sanctioned by the tribunal unless the tribunal has received a report from the Registrar that the affairs of the LLP have not been conducted in a manner prejudicial to the interests of its partners or the public interest.

     No order for dissolution of any transferor LLP shall be made by the tribunal unless the Official Liquidator has, on scrutiny of the books and papers of the LLP, made a report to the tribunal that the affairs of the LLP have not been conducted in a manner prejudicial to the interests of its partners or to public inter

     Where an order provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and it become the liabilities of the transferee LLP; and in the case of any property, if the order so directs, freed from any  charge, which is, by virtue of the compromise or arrangement, to cease to have effected.

     The LLP shall file a certified copy of the order with the Registrar within thirty days for registration. If there is a default in complying with the same the LLP, every designated partner of the LLP shall be punishable with fine which may extend to fifty thousand rupees.

     When the bill becomes an Act after getting the assent of the President there is wide scope for the practicing professionals such as Chartered Accountants, Company Secretaries, Cost Accountants etc., in the area of reconstruction of LLPs.