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.
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.[1]
By country
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.[2]
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.[3]
See also
External links
References
- Alastair Goldrein, 'Ready, Willing and Able, but Perhaps Not Always Acceptable: UK Schemes of Arrangement in Europe' (2011) 7 Pratt's J Bankr L 113^
- Australian Corporations Act 2001 (Cth), s 411(1).^
- Payne Jennifer. Schemes of arrangement : theory, structure and operation Cambridge University Press, 2014^