Scheme of arrangement
Although they have been around for many years, they are now used more commonly as a means of business restructuring. They are an important and flexible mechanism which can be used to reorganise a company’s capital, and are commonly used in corporate takeovers and demergers.
What is a Scheme of Arrangement?
A Scheme of Arrangement (SoA) is not an insolvency process but a statutory procedure under the Companies Act 2006. It is defined as a compromise or arrangement between a company and its creditors and is used to allow a company to reach an agreement with 50% in number and 75% by value of a certain class of its creditors. If agreement is reached and receives court approval, then it is binding on all creditors in that class.
When used to reach a compromise with creditors, a SoA can keep a company trading rather than going into liquidation, which can benefit both creditors and shareholders.
How are they used?
A SoA is a flexible tool that can be used to bring about different types of compromise, including extension of payment terms and debt for equity swaps. It can be used both by a solvent and an insolvent company as a business restructuring tool and a way of binding secured creditors. It can be used alongside other insolvency tools such as administration, for example, to secure a moratorium on creditor claims. It can have a part to play in restructuring plans including acquisitions, group reorganisations, demergers and the removal of minority shareholders.
Advising on SoAs is one of many ways in which HW Fisher can help businesses, both solvent and insolvent, attain their business goals.