Scheme of Arrangement

Scheme of Arrangement definition

/skiːm/ /ɒv,(ə)v/ /əˈreɪn(d)ʒm(ə)nt/

What does Scheme of Arrangement mean?

A formal arrangement in the UK between the company and its creditors and/or its members (or a class of its creditors or members) pursuant to Part 26 of the Companies Act 2006 (CA 2006) (otherwise known as a scheme or Part 26 Scheme) which is sanctioned by court. The voting threshold for approval of the scheme is 75% by value and a majority in number of creditors (or members) or any class thereof voting in person or by proxy at each of the scheme meetings. This voting majority means that dissenting creditors can be easily crammed down.

Scheme of Arrangement explained

At the first court hearing (convening hearing) the court will check whether the classes are properly formed and will direct that a meeting of creditors/members be convened. After the meeting of creditors/members, there will be a second hearing (sanction hearing) at which the scheme can finally be sanctioned. Insolvency need not be proved, so it is a useful tool avoiding the stigma of insolvency. Solvent members' schemes are often used to implement takeover schemes or public to private schemes. It should be contrasted with the new super scheme available under the Corporate Insolvency and Governance Act 2020.

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