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 & Co can help businesses, both solvent and insolvent, attain their business goals.