What compromises or schemes of arrangement may a company enter into with shareholders to avoid liquidation?

Answer 1

If you mean what restructing options are there that have already been used - the answer to that fills books upon books. And the one for your situation would probably mean yet a different combination. And if that's your Q, much more info needs to be disclosed...including why is the company failing, how large, how many shareholders, what types of creditors, what assests are there, what bank relationships, etc.

But simply pretty much anything that isn't just simply an illegal transaction (as in done to defraud), is fine if acceptable to the parties. Hence, the wary point is if the arrangement tries to prefer stockholders to other (secured creditors, bondholders, trade vendors, etc), by say liquidating assets and dividending to stockholders in preference to those with first claim to the funds. That would be very easily discovered and possibly cause all types of problems, even criminal. Fraud even pierces the "corporate veil" so the liability may be extended to the officers/shareholders individually.

Generally, it is the bondholders and other creditors that are the driving need to appease to avoid forced liquidation, not shareholders. Shareholders come last in virtually all these matters. The shareholders own the corporation so the Corp giving them things is not normally a realistic solution..it's taking something from one pocket and putting it in another to them. (Any reduction in the assets or increase in liability of a corporation is actually immeadiately reflected in the equal lowering of the value of the stock in that corp). If the company isn't solvent (debts more than assets), stockholders get nothing on a dissolution.

Using Bankruptcy Chapter 11, (a reorganization), is the typical method to get all parties with an interest to the table to discuss a resolution, while the courts protect the assests and operations of the Corporation. Frequently the answer is develping a plan to make a successfl business and the creditors accepting some stock in the "new" venture in lieu of releasing/reducing their claims. This has the effect of doing whats called diluting the value of each share of stock.

Remember, unhappy sharholders, and just about anyone who has bought a stock and had the value go down probably qualifies, always have the option of selling their stock and moving on. Investing in a company does not assure a return of any investment by any means.