How a Scheme of Arrangement can work
- The company draws up scheme proposals for its creditors
- The company sends out the proposals to its creditors, together with notice of a creditors meeting
- Meeting held where the company explains the proposals
- Creditors vote in favour of scheme
- High Court approves scheme
- Debts written down as per the scheme’s proposals
What are the main steps in a scheme of arrangement?
Key steps in a scheme of arrangementInitial Approach. ... Due Diligence. ... Scheme implementation agreement. ... Shareholder disclosure and approval process. ... Court approval and implementation.
What is meaning of scheme of arrangement?
A Scheme of Arrangement is a process used by a company in financial difficulty to reach a binding agreement with its creditors to pay back all, or part, of its debts over an agreed timeline.
What is a UK scheme of arrangement?
A scheme of arrangement is a formal statutory procedure under Part 26 of the Companies Act 2006 under which a company may enter into a compromise or arrangement with its members or creditors (or any class of them).
Can a scheme of arrangement be hostile?
An off-market takeover bid can be used for either a friendly or hostile deal, whereas a scheme of arrangement and trust scheme can only be used in a friendly deal.
Is scheme of arrangement a court order?
Scheme of Arrangement means a scheme of arrangement, share for share exchange or analogous procedure. Scheme of Arrangement means a scheme of a compromise or arrangement sanctioned by a court under Part VII of the Act, as may be amended or similar procedure under a succeeding law or regulation.
What is approved scheme of arrangement?
APPROVAL OF SCHEME: Pursuant to Section 230 of CA, 2013, a scheme of arrangement is required to be approved by a majority of persons representing 3/4th in value of the creditors, or class of creditors or members or class of members, as the case may be, either voting in person or by proxy or by way of a postal ballot.
Who can initiate a scheme of arrangement?
Section 411(1) states that where a company and its creditors or shareholders propose a compromise or arrangement, the court can order a meeting or the creditors or shareholders. Once the scheme is proposed, an application must be made to court for the meeting.
Who can apply for a scheme of arrangement?
Firstly, an applicant (i.e. the company's creditor, member, liquidator or judicial manager, where applicable) will have to file an application in Court pursuant to s. 366 for leave to summon a meeting of the company between its creditors and/or members.
Is a scheme of arrangement an insolvency process?
What is a scheme of arrangement? A scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors. It is not actually an insolvency procedure and can be used by both solvent and insolvent companies to agree any issue or matter with its creditors and/or members.
What is the creep rule?
acquisitions of no more than 3% of the voting rights every six months (creep rule)
What percentage of shares do you need for a takeover?
The goal of the takeover by the acquirer is to achieve at least 51% ownership in the target company's stock. The strategies used in a hostile takeover can create additional demand for shares while creating an acrimonious battle for control of the target company.
How does one company take over another?
Takeovers can be done by purchasing a majority stake in the target firm. Takeovers are also commonly done through the merger and acquisition process. In a takeover, the company making the bid is the acquirer and the company it wishes to take control of is called the target.
What is scheme of arrangement in shares?
Scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors.
What is a scheme of arrangement merger?
A scheme of arrangement can be used only for a friendly acquisition of a company, and is frequently used to effect 100% acquisitions. A scheme of arrangement is a shareholder and court-approved statutory arrangement between a company and its shareholders that becomes binding on all shareholders by operation of law.
What is compromise and arrangement?
It basically connotes the settlement of a conflict by mutual consent and agreement or through a scheme of compromise. Thus, for a compromise, there has to be some dispute or conflict. On the other hand, the word arrangement has been defined under section 230(1) of the companies act.
What is a company scheme?
A scheme of arrangement (or a "scheme of reconstruction") is a court-approved agreement between a company and its shareholders or creditors (e.g. lenders or debenture holders). It may affect mergers and amalgamations and may alter shareholder or creditor rights.
What is a scheme of arrangement?
Under a scheme of arrangement, the bidder and target must first reach agreement to propose the scheme to target shareholders, following which approvals are sought from both target shareholders and the Court.
What is the first step in the scheme process?
The first step in the scheme process will typically involve the bidder approaching the target with an indicative offer to propose a scheme under which bidder would acquire 100% of target.
Best possible chance of success
If your company is facing financial problems, whether it concerns large debts, trading difficulties or pressure from creditors, we can help you.
What is a Scheme of Arrangement?
A Scheme of Arrangement is a process used by a company in financial difficulty to reach a binding agreement with its creditors to pay back all, or part, of its debts over an agreed timeline.
How can Deloitte help?
Our turnaround experts can guide you through every step of the process to ensure that the Scheme of Arrangement has the best possible chance of success and that the process goes quickly, smoothly and cost effectively.
When to use Scheme of Arrangement?
Schemes of arrangement are used to execute arbitrary changes in the structure of a business and thus are used when a reorganisation cannot be achieved by other means. They may be used for rescheduling debt, for takeovers, and for returns of capital, among other purposes. It is not a formal insolvency procedure, but it can be used alongside insolvency procedures such as administration.
What is scheme of arrangement in Australia?
In Australia, the relevant provisions for effecting a scheme of arrangement or reconstruction are located in Part 5.1 of the Corporations Act 2001 (Cth). Section 411 (1) states that where a company and its creditors or shareholders propose a compromise or arrangement, the court can order a meeting or the creditors or shareholders. Once the scheme is proposed, an application must be made to court for the meeting. The shareholders and creditors then meet in classes and if the scheme is approved, it is authorized at a second court hearing. The court order is effective once it has been filed with the Australian Securities and Investment Commission.
What is scheme of reconstruction?
t. e. A scheme of arrangement (or a "scheme of reconstruction") is a court-approved agreement between a company and its shareholders or creditors (e.g. lenders or debenture holders). It may affect mergers and amalgamations and may alter shareholder or creditor rights.
How many shareholders must vote in favour of a takeover scheme?
It is usual for the court to require 75% of shareholders or creditors to vote in favour of the scheme, but there is no headcount test. However, section 236A amended the provisions as they relate to code companies. The court cannot approve a scheme in these circumstances unless it believes that the company shareholders will not be adversely affected by the change occurring through the use of a scheme rather than the Takeovers Code, or the Takeovers Panel has presented the court with a no-objection statement.
How many votes are required to approve a scheme?
The requirements to approve a scheme are very similar to those in English law. There are two tests: a majority in value test which requires 75% of each class to vote in favor of the scheme and a majority in number test (or headcount test) which requires a majority of people present to vote in favor. This is the requirement for a creditor scheme, but the head-count test was amended in 2007 for member schemes. The Australian court now can approve a member scheme even if a majority of members present and voting at the meeting are not in favor.
What is a scheme under section 896?
Under section 896, an application must be submitted to court requesting an order for a meeting.
When was the Companies Act reformed?
When the Companies Act 1955 was reformed in 1989, the New Zealand Law Commission divided the previous scheme of arrangement provisions into two separate procedures. There is a prescriptive option that does not require court sanction, but instead allows shareholders or creditors to bring an amalgamation on a 75% vote at a meeting, and a procedure which allows the High Court to order an amalgamation or compromise without a vote. The provisions for amalgamations are in Part XIII of the Companies Act 1993 and schemes of arrangement are in Part XV.
What is scheme of arrangement?
Scheme of arrangement. A compromise or arrangement between a company and its members or creditors (or any class of them) under Part 26 of the Companies Act 2006. A scheme of arrangement can be used to effect a solvent reorganisation of a company or group structure, including by merger or demerger, as well as to effect insolvent restructurings such ...
What happens if a court approves a scheme?
If the court sanctions the scheme, the scheme is binding on all affected members, creditors and the company.
How much approval does a scheme need?
A scheme requires approval by at least 75% in value of each class of the members or creditors who vote on the scheme, being also at least a majority in number of each class. If the scheme includes a reduction in the company's share capital, a separate special resolution of the company's members (requiring a 75% majority of those voting) ...
What is the court's permission to convene meetings of members and creditors?
The court's permission is needed to convene the meetings of members and creditors to vote on the scheme and at this point the court will review whether any division of the members and creditors into classes for voting purposes is appropriate. If the relevant members and creditors approve the scheme, the court will decide at a further hearing ...
What is a scheme of arrangement?
A scheme of arrangement is typically used to execute a change in the structure of a company, such as during a takeover. It is a court-approved agreement between a company and its shareholders or creditors to allow a bidder to acquire all of the shares in the company. For a scheme of arrangement to pass, shareholders holding at least 75% ...
What happens if a scheme of arrangement is announced?
If a scheme of arrangement is announced relating to a company that you hold shares in, we'll send you a secure message. This will explain the terms of the scheme, what you need to do about it (if anything), and how to confirm your chosen option. We’ll also let you know the deadline for when you need to make a decision.
What is a scheme of arrangement?
A scheme of arrangement is an agreement an indebted business makes with its creditors. This agreement needs to be approved by the creditors who are affected by it. It can cover things such as:
Why is it important?
A scheme of arrangement binds a company and its creditors to the terms of the arrangement. This type of scheme gives a company the chance to pay off its debts without entering insolvency. However, this kind of exercise should not be undertaken without the prior advice of a lawyer.
Process
Companies who wish to propose a scheme of arrangement need to follow a particular process as outlined in the Corporations Act 2001 (Cth).
What about a Deed of Company Arrangement (DODA)?
A deed of company arrangement (DOCA) is a binding agreement between the company and its creditors to allow the company to trade in order to pay back its debts. The DOCA will generally specify how the company’s affairs and assets are to be dealt with so that the business (or as much of it as possible) can be operational again.
Finally
Companies that find themselves struggling to repay their creditors have options when it comes to restructuring their debts. One such way is by entering a scheme of arrangement. However, these schemes are often complex and require strict legal compliance.
What is scheme of arrangement?
English law schemes of arrangement are frequently used in complex financial restructurings and have become a favoured instrument for foreign companies, often providing a more efficient and responsive alternative to local restructuring tools.
Why is Rodenstock a reasoned judgment?
The fully reasoned judgment in Rodenstock is important in that, in appropriate circumstances, companies incorporated outside of England may be able to avail themselves of the cram down mechanism under a scheme of arrangement. This will be particularly attractive where the local law does not have a mechanism like a scheme of arrangement available to effect a restructuring.
Why Undertake A Scheme of Arrangement Over Judicial Management?
- A scheme of arrangement is often preferable to a judicial managementin various situations. These include: 1. Where the company wishes to avoid publicity of its financial woes; 2. Where the company directors are unwilling to cede control over the company to a judicial manager; and/or …
Process of Effecting A Scheme of Arrangement in Singapore
- The following infographic provides a quick summary of the application process for a scheme of arrangement: (Click on the image to download it in a new tab.)
effect(s) of The Scheme of Arrangement
- The effect(s) of the scheme of arrangement will depend on its terms. For example, rights of creditors can be affected only if the scheme has expressly provided for this. The same applies to the alteration of third-party rights.
Alteration of A Scheme of Arrangement
- Once sanctioned by the court, a scheme of arrangement is binding on all parties to the scheme and cannot subsequently be altered. This is even if the company’s shareholders and creditors agree to alter the scheme. A scheme of arrangement can be overridden only by proposing an entirely new one and undergoing the whole approval process again.
Termination of A Scheme of Arrangement
- The scheme may include terms on how it is to be terminated. For example, the terms of a scheme of arrangement may state that the scheme ends: 1. Upon complete implementation of the scheme; 2. After a stipulated period of time; and/or 3. At the scheme manager’s discretion. — Schemes of arrangement grant companies in financial distress temporary relief from their debt …