Power to Enforce a Scheme: Section 231

The power to enforce a scheme is what stops a sanctioned compromise from being a piece of paper. Section 231 of the Companies Act, 2013 keeps the National Company Law Tribunal in the matter after it has sanctioned a scheme under section 230, with an express power to supervise, a power to modify, and a power to wind the company up if the scheme fails on its own terms. This page reads section 231 as printed in the Act.

What does the power to enforce a scheme actually cover?

Two things, and the Act splits them into separate clauses with different verbs. Where the Tribunal makes an order under section 230 sanctioning a compromise or an arrangement in respect of a company, it shall have power to supervise the implementation of the compromise or 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 implementation of the compromise or arrangement.

The supervisory power is shall. The directing and modifying power is may, and it carries no end date: at any time thereafter. A scheme sanctioned five years ago is still inside the Tribunal's reach on the face of the section.

When can the Tribunal wind a company up under section 231?

Only when two conditions hold at once, and the section joins them with and. Sub-section (2) applies where the Tribunal is satisfied that the compromise or arrangement sanctioned under section 230 cannot be implemented satisfactorily with or without modifications, and the company is unable to pay its debts as per the scheme.

A scheme that is merely difficult does not reach this bar. Nor does a company that is short of cash under a scheme that is otherwise working. Both limbs have to be met, and the second is measured against the scheme itself rather than against solvency at large.

The consequence is routed rather than free standing. The Tribunal may make an order for winding up the company and such an order shall be deemed to be an order made under section 273, which places the company in the ordinary Tribunal winding up machinery covered in the effect of a winding up order rather than in a procedure of its own.

How does section 231 relate to section 230?

It is downstream of it. Section 230 carries the application, the meetings, the disclosures and the voting threshold, and that route is set out in what is a scheme of arrangement. Section 231 begins only where the Tribunal makes an order under section 230 sanctioning a compromise or an arrangement, so there is nothing to enforce until a sanction order exists.

Where the scheme is a merger rather than a pure compromise, the order contents are governed by the separate machinery in a merger under section 232, and small companies and wholly owned subsidiaries have their own route in a fast track merger.

Does section 231 reach schemes sanctioned under the old Act?

Yes, with a softener. Sub-section (3) provides that the provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of this Act sanctioning a compromise or an arrangement.

The words so far as may be do the work. They pull pre-2013 schemes into the supervisory regime without pretending that every limb of section 231 maps cleanly onto an order made under a different statute. The section does not say which limbs survive the transposition and which do not.

For an investor reading a company's disclosures, the practical signal is that a sanction order is not the end of a scheme's public trail. Directions and modifications under the power to enforce a scheme are Tribunal orders in their own right, and a listed company that receives one is disclosing a material event under the rules described in material event disclosure.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.