A scheme of arrangement is a statutory procedure under ss.895-900 CA 2006 ‘where a compromise or arrangement is proposed between a company and its creditors, or any class of them, or between the company and its members, or any class of them’ (s.895(1) CA 2006).
A scheme can be a compromise or arrangement about anything which the company and its creditors or members can agree between themselves. Schemes are used for many purposes, including returns of capital, reductions of capital, company reorganisations and insolvencies.
The key stages of a scheme of arrangement are as follows:
Stage One
The company, creditors or the members apply to the court.
Stage Two
The Registrar will make an order on the claim form convening meetings of the relevant classes of members or creditors. Currently, it is usual for 21 clear days’ notice to be given to members and/or creditors. Depending on what the scheme is being used for, a general meeting may also be required, but this is entirely separate from any court meetings. Notice of the court-convened meetings must be accompanied by an explanatory statement explaining the effect of the scheme.
Stage Three
The resolution to approve the scheme will then be proposed at the class meeting(s) convened by the court. To be effective, the scheme must be approved by a majority in number representing 75% in value of either creditors or members (or any class of creditors or members) who vote at the meeting and be approved by the court (s.899(1) CA 2006).
There may be more than one court meeting. The court must summon meetings for each of the relevant classes of member. These meetings operate in much the same way as a standard general meeting save that they are convened by the court.
Following the court-convened meeting(s) the chairman will report to the court with the result.
Stage Four
The court will then hear the petition to sanction the scheme. The court has discretion in its decision. In deciding whether or not to sanction the scheme the court must be satisfied that:
- approving the scheme is reasonable;
- each class has been fairly represented by those attending the meeting; and
- the statutory provisions have been complied with – for example, correct notice having been given of the court convened meeting, sending out the explanatory statement, or passing the resolution to approve the scheme correctly.
Stage Five
Once the scheme has been sanctioned by the court, an office copy of the s. 899 CA 2006 order must be filed at Companies House. The order is not effective until this has been done. Once the court has sanctioned the scheme and the court order has been registered at Companies House, the scheme becomes binding on all the members and creditors (s.899(3) CA 2006).
The major advantage of schemes of arrangement is that they can be organised in many different ways, without, for example, the constraints imposed by the specific statutory provisions for a buy-back or an insolvency arrangement.