Scheme of arrangement

A compromise or arrangement between a company and its members or creditors (or any class of them) under Part 26 of the Companies Act 2006 (CA 2006). A scheme of arrangement can be used to effect a solvent reorganisation of a company or group structure, including by merger or demerger, as well as to effect insolvent restructurings such as by a debt for equity swap or by a wide variety of other debt-reduction strategies.

A scheme requires approval by at least 75% in value of each class of the members or creditors who vote on the scheme, being also at least a majority in number of each class. If the scheme includes a reduction in the company's share capital, a separate special resolution of the company's members (requiring a 75% majority of those voting) is also necessary.

The court's permission is needed to convene the meetings of members and creditors to vote on the scheme and at this point the court will review whether any division of the members and creditors into classes for voting purposes is appropriate.

If the relevant members and creditors approve the scheme, the court will decide at a further hearing whether to sanction the scheme, and will look at whether the approved scheme is fair. If the court sanctions the scheme, the scheme is binding on all affected members, creditors and the company.

For information on the related restructuring plan under Part 26A of the CA 2006 brought in by the Corporate Insolvency and Governance Act 2020, see Practice note, Part 26A restructuring plans.

For further details on schemes of arrangement, see Practice notes, Schemes of arrangement: overview and Schemes of arrangement: role of the court.