An informal arrangement is exactly what the name implies. It operates without
reference to the courts but it requires a plan (proposal)
that results in a compromise between the company and its creditors. An informal
arrangement is covered under Part 14 of the Companies Act 1993.
A compromise is defined as including:
- Cancelling all or part of the debt of the company; or
- A moratorium, where creditors agree not to pursue their debts for a specified
- Varying the rights of its creditors or the terms of the debt; or,
- An arrangement by shareholders to take equity in exchange for their debt
- An alteration of a company’s constitution that affects the likelihood of the
company being able to pay a debt.
Informal arrangements are another tool that can be used to save a company from
liquidation or receivership.