Book of Jargon® Series

Scheme of Arrangement

An English statutory procedure involving a compromise or arrangement between a company and a Class of its Creditors or members, with the sanction of a court. To gain the sanction of the court, the Scheme of Arrangement must be fair and reasonable and must be a genuine attempt to reach an arrangement or compromise between the company and its Creditors and/or members. Approval requires 75 per cent by value of votes cast and a majority by number. A helpful tool in restructuring, allowing a Cramdown to be implemented on Creditors within the same Class without the company having to commence full scale Insolvency proceedings such as Administration. Can also be used in order to effect a public to private/takeover in the UK by either the cancellation of all existing shares upon payment of consideration to the target shareholders and the issuance of new shares to the bidco (a ‘cancellation scheme’) or by the transfer of all existing shares to the bidco (a ‘transfer scheme’). In Ireland, a statutory Scheme of Arrangement is available for Irish-registered companies and in certain circumstances may apply to foreign registered companies. Approval requires at least 75 per cent in value of the Creditors and a majority by number of each class of Creditors, which is a significantly higher approval threshold than that required for a scheme of arrangement in Examination. Examination also offers an Automatic Stay and restrains actions against the company, so statutory Schemes of Arrangement in Ireland are rarely used.