Schemes of arrangement—class issues
Produced in partnership with Chris Mallon (retired partner), Riccardo Alonzi and Jonathan Akinluyi of Skadden Arps Slate Meagher & Flom (UK) LLP
Schemes of arrangement—class issues

The following Restructuring & Insolvency guidance note Produced in partnership with Chris Mallon (retired partner), Riccardo Alonzi and Jonathan Akinluyi of Skadden Arps Slate Meagher & Flom (UK) LLP provides comprehensive and up to date legal information covering:

  • Schemes of arrangement—class issues
  • Statute and practice guidance
  • Identifying a class
  • Comparators
  • Distinction between rights and interests
  • Minority oppression issue
  • Excluding creditors or shareholders from a particular class
  • Manipulation of classes

This Practice Note looks at the general principles involved in determining class issues. For a more detailed look at what may or may not fracture a class, see Checklist: Checklist of factors which may (and may not) fracture the class in a scheme of arrangement.

Statute and practice guidance

Part 26 of the Companies Act 2006 (CA 2006), which governs the scheme of arrangement (scheme) procedure, requires the applicant to apply first for an order of the court convening the relevant meeting(s) of creditors or members or any class(es) to approve the proposed scheme. The court will not have jurisdiction to sanction a scheme at the subsequent sanction hearing if the meetings of the relevant classes of creditors and/or members (as applicable) have not been properly constituted. It is, therefore, vitally important to identify and compose the appropriate classes with due care.

The practice statement issued by the High Court in 2002 sets out the following guidance:

  1. the applicant must ensure that each scheme meeting is constituted by a class of creditors whose rights against the company ‘are not so dissimilar as to make it impossible for them to consult together with a view to their common interest’: it is the applicant’s responsibility to draw the court’s attention to any issues that may have an impact on class composition as early