Corporate Insolvency Procedures
Scheme of Arrangement


What is a scheme of arrangement?

A scheme of arrangement is a court-sanctioned agreement between a company and other parties. Schemes are a flexible and long-established Companies Act procedure. A scheme is a useful strategic device in a wide range of circumstances including restructurings, takeovers and mergers. 

A scheme is usually proposed by a company, although administrators may propose a scheme. A scheme is a compromise or arrangement between a company and its members or creditors (or any class of them - classes are groups of creditors with similar characteristics). Schemes need to be implemented in accordance with the Companies Act 2006 and involve two court applications: one to convene meetings to approve the scheme, one to sanction the scheme. If approved, the scheme will be binding on all creditors and shareholders, including those within each class voting against the scheme.

The statutory voting majorities required for a scheme to be implemented are calculated by reference to those creditors and shareholders in each class exercising their voting rights in relation to the scheme. Companies Act provisions require a scheme to be approved by:

  1. A majority in number of each class of creditor or shareholder voting in person or by proxy at whatever separate class meetings which the court has ordered must be convened
  2. 75% in value of the creditors and shareholders of each class voting in person or by proxy at each meeting.

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