LIQUIDATION, JUDICIAL MANAGEMENT & SCHEME OF ARRANGEMENT – PROCEDURE & PRACTICE CHANTAN LLC 2 • Section 210, Companies Act (Cap 50) provides for schemes of arrangement to be binding on creditors and members alike after the requisite approval by the specified majority and upon confirmation by the court. for approving a scheme of arrangement. 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. in consideration of the Offeror paying cash and/or issuing new shares in itself to the shareholders of the Company. This scheme is most notable for flexibility and selectivity, allowing a company to continue to trade in their market. In many countries, it is accepted that the insolvency framework should - as far as possible - give preference to mechanisms that assist debtors in financial difficulties, with bankruptcy or liquidation proceedings serving as a last resort. The court will call a ‘Class Hearing’ – essentially a creditors meeting to establish the class of creditors. Pursuing a scheme of arrangement in appropriate circumstances, will carry advantages over the alternative insolvency procedures of examinership or liquidation, which amongst others include: Offering a flexible, operational, creative and simple mechanism for restructuring debt; Arrangement transactions are typically detailed in a “plan of arrangement”. 2/- each of ABB Power Products and Systems India Limited pursuant to Scheme of Arrangement. March 28 2001 To access our in-house intelligence please request a trial here. Cork Gully LLP Scheme of Arrangement guidance notes 5 6 Scheme Procedure Advantages of a Scheme • Although similar to Company Voluntary Arrangement, in that a Scheme is, fundamentally, either a compromise or arrangement, a Scheme provides greater flexibility. creative and simple mechanism for restructuring debt; Being cost-effective, by avoiding Single affordable monthly payment If you are struggling with a number of unsecured debts, one of the problems […] A scheme can be used to effect a wide range of corporate restructures. That is, in a takeover, it is common for the bidding company to relinquish condition… • One of the advantages of a scheme of arrangement is its flexibility. They will hold a creditors meeting to vote, with a majority of 75% in favour required for the arrangement to take effect. The scheme of arrangement refers to a court-approved scheme between a company, their shareholders and creditors, binding them to a reorganisation or restructuring of their rights and obligations. Mondaq uses cookies on this website. Creditors’ Voluntary Liquidation happens when shareholders and directors agree to place the business into liquidation because it can no longer pay its bills when they fall due.This is the most common form of liquidation in the UK. If a scheme of arrangement is deemed an option for your company, you will need to begin creditors negotiations. A company voluntary arrangement only binds unsecured creditors. The new Companies Act has made Schemes of Arrangement significantly cheaper and more flexible, with the result that they are now a realistic option for struggling companies to consider. Scheme of arrangement between a company and its members or any class of them. Further to this, while there is no automatic moratorium unless applied, this procedure can be used as an exit from administration. by Sections 198 – 201 of the Cyprus Company Law, Cap. All this is expensive. All Rights Reserved. going concern. Cyprus reduces the threshold for approving Schemes of There a number of advantages and disadvantages to a Debt Arrangement Scheme (DAS). A scheme of arrangement is a court sanctioned procedure that is also required to be approved by the target's shareholders. ©2020 Business Rescue. All this is expensive. size (75+%) under the previous regime. A scheme is particularly useful because it allows for the offeror to use the target company to negotiate with its shareholders collectively and then bind them to the arrangement agreed to by the 75% majority 2. Only the listed Co… The company holds professional indemnity insurance and complies with the EU Services Directive. Companies that have suffered from supplier issues or late payments, resulting in damage to their short-term health. the scheme document itself, which sets out the scope and terms of the scheme and, crucially, the business, assets and liabilities the scheme covers. It’s possible that during the scheme of arrangement timetable, the court can refuse the proposal if deemed unfair for creditors. Christopher Horner (IP no 16150) is licenced by the Insolvency Practitioners Association. More information regarding creditor classes can be found. Sections 86-87 of the Companies Law give the Cayman Islands courts significant flexibility to approve corporate restructuring by way of schemes of arrangement, reconstruction and amalgamation. A scheme of arrangement (a “Scheme”) is one of the methods of effecting a take-over. Scheme of arrangement is a 'compromise' or 'arrangement' between creditors or members and the company as the case may be. Recent legislative amendments, have reduced the required The procedure can benefit companies for a number of reasons, including: Binding secured creditors in the arrangement, meaning if the scheme is passed, they have no say on their claim. A scheme of arrangement may be used for rescheduling and restructuring debt, for takeovers or even returns of capital. Companies that have recently started up and are facing trading and financial difficulties, but need time to prove their business model. Kong law, is considering whether to implement a parallel scheme of arrangement. As mentioned earlier, this scheme is not part of insolvency legislation, therefore avoiding the publicity involved in such procedures. A scheme of arrangement may be pursued by the company under How worried should I be about director’s disqualification? You’ll only need to do it once, and readership information is just for authors and is never sold to third parties. A scheme of arrangement may be used for rescheduling and restructuring debt, for takeovers or even returns of capital. Schemes of arrangement appear in the legislation of a number of common law jurisdictions including Hong Kong, the Cayman Islands and the British Virgin Islands1and, with the appropriate approvals, can be used to effect a wide range of company restructurings. scheme and related documentation (voting and claim forms, notices to creditors and evidence for a court application) must be drafted. A scheme can also be used in a debt and equity swap where a certain creditor class takes a certain class of share in lieu of the debt. A scheme of arrangement is a procedure under Part 5.1 of the Corporations Act that allows a company to reconstruct its capital, assets or liabilities with the approval of its shareholders and the Court. Disadvantage of a scheme of arrangement: The disadvantage of a scheme of arrangement is that it requires the preparation of elaborate documents and the observance of a strict procedure, including an initial and final application to the court and the holding of meetings. REQUEST ACCESS. A company can avoid the negative publicity and loss of goodwill that is generally associated with procedures under the... A Scheme is binding on all creditors within their class once sanctioned … jurisdiction for pursuing global restructurings. Schemes of arrangement are becoming increasingly more popular in recent years as the preferred way in which 'takeovers' of Australian listed companies are effected.A scheme of arrangement is costs relating to investigation and administration of examinership Advantages and disadvantages of administration. The arrangement has to be approved by a court. Job sharing is defined as an alternative work schedule where two employees share the responsibility of one job voluntarily. Therefore, creditors cannot threaten or harass you with further action. The procedure for pursuing a scheme of arrangement is governed Cyprus offers an attractive alternative for Court sanctioned Background. Alternatively, outstanding shares in the listed Company may be transferred directly to the Offeror. have eliminated the former requirement of securing a special It is the target company that controls most of the scheme process, with some involvement from the offeror and the shareholders. The Risk of Company Insolvency for a Director. a judge for sanctioning, and upon its sanctioning it becomes To print this article, all you need is to be registered or login on Mondaq.com. A flexible work arrangement prevents you from excluding qualified candidates because you don’t offer flexibility in how work is performed. By using our website you agree to our use of cookies as set out in our Privacy Policy. Another major advantage to the procedure is that the costs are significantly less than that of administration, liquidation etc. Businesses that are likely to be profitable, but need time and space to produce a comprehensive plan and budget. Following the approval of a scheme of arrangement by the If they do agree, you must still go to court and risk the court refusing the arrangement. Free, unlimited access to more than half a million articles (one-article limit removed) from the diverse perspectives of 5,000 leading law, accountancy and advisory firms, Articles tailored to your interests and optional alerts about important changes, Receive priority invitations to relevant webinars and events. The Advantages of a Debt Arrangement Scheme 1. The advantages of the Scheme are discussed in section 10.1 (Advantages) of this Explanatory Statement. – Ramifications Of The Newly Introduced Settlement Mechanism Under Turkish Competition Law, © Mondaq® Ltd 1994 - 2020. which can be broadly outlined by the following steps. Benefits of the Scheme The procedure can benefit companies for a number of reasons, including: Binding secured creditors in the arrangement, meaning if the scheme is passed, they have no say on their claim. It is imbedded in the nature of the scheme that it provides more flexibility of how to structure a bid. An arrangement is a transaction that may be effected by a Canadian corporation under the corporation’s governing corporate legislation. Why is HMRC the biggest creditor in the UK? A scheme of arrangement is a procedure allowing a company to be restructured under the Companies Act and may also be used to privatise a listed company. Our business rescue experts can discuss your business and provide initial free, confidential advice as to your next move. Are high court enforcement officers powerful? This December 1st however, in this already incredible year, will be remembered for the owners1 ... Hospitality   Just when the hospitality sector didn’t think things could get any worse for1 ... [caption id="attachment_10890" align="alignleft" width="1200"] Photo by Reece Horton[/caption] The Chancellor Rishi Sunak delivered a spending1 ... Business Rescue Expert is part of Robson Scott Associates Limited, a limited company registered in England and Wales No. This is a quick overview of some of the principal ones. They will hold a creditors meeting to vote, with a majority of 75% in favour required for the arrangement to take effect. 05331812, a leading independent insolvency practice, specialising in business rescue advice. This is a full-time position, and the sharing creates regular part times for the employees like half days, alternative weeks, or alternative days and thus avoids absenteeism. What are the advantages of the scheme? More information regarding creditor classes can be found here. You must be sure the arrangement is most suitable for your company, and you have a profitable future to ensure your creditors do benefit. SCHEME OF ARRANGEMENT The section contains that application for the Scheme can be made either by the Company, or by any creditor, or by a member or by the liquidator in case of company which is being wound up. Therefore, you must ensure your proposal is clearly outlined, and all information is correct. 5 6 Scheme ProcedureAdvantages of a Scheme. All trading will cease and company assets are sold in order to repay creditors. Construction Disputes: What Will 2021 Bring? ... A scheme of arrangement is a compromiseor arrangement entered into between a company and some or all of its creditors under Section 99 of the Companies Act and Section examinership or liquidation, which amongst others include: The content of this article is intended to provide a general Interest and charges on your debts will be frozen – meaning they won’t grow even though you’re repaying over a longer amount of time. For instance, the creditor classes include fixed charge, floating charge, unsecured creditors etc. There are advantages for employers who allow alternative work arrangements. Are you already an IFLR subscriber? It highlights the key areas to consider including: Hong Kong law and why this is relevant; the Hong Kong Court’s jurisdiction to sanction “foreign” schemes of arrangement; recognition of the scheme in other offshore jurisdictions; and the advantages Soft Touch Provisional Liquidation: Restructuring Under Protection Of A Debt Moratorium, Pressure Points: Timely Amendments To UAE Bankruptcy Law Introduced To Cover Emergency Situations, Emergency Measures In Insolvency Legislation In Response To The COVID-19 Crisis, Facilitation Of Cross Border Restructuring, Debt Restructuring: Avoiding Corporate Bankruptcy In Hong Kong, Insolvency And Restructuring From A Covid-19 Perspective, Amendments To The Transfer And Mortgage Of Property Law N.9/65, Amendments To The AIFMD And UCITS Framework Affecting Depositaries. Advantages of a Scottish Debt Arrangement Scheme (DAS) If you’re a Scottish resident struggling with personal debts, there are a number of solutions available to you that can appease your creditors and put you on the path to financial recovery. An alternative route to takeovers in Hong Kong By Nicholas Norris Simmons & Simmons, Hong Kong. required statutory majority, the arrangement may be brought before arrangement to a simple majority in value (50+%) Where the Are you already an IFLR subscriber? about your specific circumstances. In these challenging economic times, there are many reasons … Norway, Russia, Ukraine and China; making Cyprus an attractive The arrangement also avoids the negative publicity and loss of goodwill compared to an insolvency procedure, meaning suppliers and consumers will still support your business. The vote threshold for the scheme of arrangement is also high, and requires 75% of creditors to be onboard. DOCAs are a form of company restructuring provided for under Part 5.3A of the Corporations Act 2001 (Cth) (“the Act”) the other alternatives being liquidation and returning the company to the directors. Due to large involvement from the court, the costs of proposing a scheme of arrangement are much higher than than of a, Before considering the scheme, we suggest seeking immediate, professional advice. A recent High Court decision has shown that the courts are prepared to exercise their powers under the Civil Procedure Rules to stay claims brought by dissentient creditors in circumstances where a scheme of arrangement is proposed. However their relevance will very much depend on your individual circumstances. The scheme will then become effective once a court order has been sent to the Registrar of Companies, with the creditors required to submit a proof of debt form within the first three months. Other examples of benefits include: A scheme of arrangement can be used as a way to exit the administration procedure, thus allowing a business to avoid any consequences of entering insolvency. The relevant provisions and scheme of arrangement timetable can be found under Part 26 and 27 of the, The court will call a ‘Class Hearing’ – essentially a creditors meeting to establish the class of creditors. What are the benefits of using a Scheme of Arrangement? Read this article – and more – for a one-week period. in terms of monetary value and reputation. POPULAR ARTICLES ON: Insolvency/Bankruptcy/Re-structuring from Cyprus, In a soft touch provisional liquidation in Hong Kong, a provisional liquidator is appointed to pursue a corporate restructuring, https://www.herbertsmithfreehills.com/latest-thinking/pressure-points-timely-amendments-to-uae-bankruptcy-law-introduced-to-cover, This is the Malta contribution published in a report by the AIJA (International Association of Young Lawyers) Insolvency Commission – November 2020. company. A scheme of arrangement essentially helps a company restructure their debt, further aiding recovery from financial dissolution. The vote threshold for the scheme of arrangement is also high, and requires 75% of creditors to be onboard. generally enforceable throughout the European Union, Norway, A scheme is a statutory mechanism under the Companies Act 2006 which, under the supervision of the English Court, is often used in the UK to achieve a takeover as an alternative to a traditional tender offer (a 'member scheme') or to restructure a company’s debt (a 'creditor scheme'). between companies was a court approved scheme of arrangement. eliminated the need for securing a special majority in value and in Background. In considering a scheme of arrangement, Cyprus courts will A Deed of Company Arrangement, or DOCA, is an arrangement between a company that has entered into administration and the company’s creditors. A scheme of arrangement is a mechanism by which a company may enter into a compromise or arrangement with its members or creditors. bound by scheme Specific provisions for transferring undertakings or property from one company to another Generally expected to provide offeror with control of target company more quickly than schemes of arrangement ensuring minimum disruption to the business Greater flexibility since offeror A scheme … It’s important the company directors are completely transparent and honest about the financial difficulties the business is facing, along with the reasons and the company history. binding on all parties involved. The statutory terms ‘compromise’ and ‘arrangement’ are interpreted broadly by the courts, and new contexts for the use of schemes are continuing to be developed. The scheme of arrangement has in recent years overtaken the offer as the more popular deal structure for a public takeover in the UK. A Company Voluntary Arrangement (CVA) provides a way for companies in distress to pay off their debts over a fixed period of time, and offers the opportunity to address issues surrounding management and operational systems that were not working.. As with all formal insolvency procedures, the support of professional advisors is paramount if the business is to move forward with confidence. distress; any creditor or shareholder of the company; or in the The creditors will be made aware of the first creditors meeting when receiving an Explanatory Statement, outlining the proposal and the reasons for doing so. During economic downturns, even businesses with strong long term prospects may face real short term working capital challenges and the ensuing prospect of corporate bankruptcy. If they do agree, you must still go to court and risk the court refusing the arrangement. Hierarchical structures tend to resemble pyramids, with the highest levels of power and authority at the very top. Likewise, all information regarding your creditors must be present and correct. 113, lowering the Ordinarily, the common law and company For instance, the creditor classes include fixed charge, floating charge, unsecured creditors etc. majority of 75% both in value and in number of the creditors Schemes have been used in the United Kingdom (and in many other Commonwealth jurisdictions) for many years. jurisdictions, including England, Singapore and Hong Kong which are Prepack Administration – what are the pros and cons. Debt Arrangement Scheme Advantages & Disadvantages Like everything in life, there are positives and negatives to entering a Debt Arrangement Scheme (DAS) to solve your debt issues. The wide range of bilateral and multilateral treaties enjoyed by In these investment scenarios, there are times when an organization needs more money than is as of now being produced by its activities; it has two different ways to get it. recognisable and enforceable in the European Union, Switzerland, Sign Up for our free News Alerts - All the latest articles on your chosen topics condensed into a free bi-weekly email. This Practice Note examines the advantages and disadvantages, from the offeror’s perspective, of effecting a takeover by way of a scheme of arrangement as opposed to a contractual offer. debt restructurings, by reducing the statutory majority necessary However, a creditors' scheme of arrangement offers various advantages to a DOCA, such as: a scheme need only be voted on by those classes of creditors whose rights are affected by it, whereas a DOCA must be voted on and approved by all secured and unsecured creditors as one homogenous group; guide to the subject matter. When is it time to consider administration? For directors, it’s also important to note that there is no report on the arrangement under the Company Director Disqualification Act 1986. A scheme of arrangement is a useful tool as it provides for a statutory form by which affected creditors and/or members may agree to a scheme which, if approved by the court, will bind dissenting creditors and/or members. March 28 2001 To access our in-house intelligence please request a trial here. Background Arrangement and compromise Advantages of schemes of arrangement Difficulties Practical approaches Comment. In many countries, it is accepted that the insolvency framework should - as far as possible - give preference to mechanisms that assist debtors in financial difficulties, with bankruptcy or liquidation proceedings serving as a last resort. Professor Payne has done excellent work to draw together the law and practice of English schemes of arrangement into a highly readable format, which balances a high-level overview with a discussion of important details … and liquidation proceedings; and. For instance, unlike administration, there is no moratorium period for a company. An alternative route to takeovers in Hong Kong By Nicholas Norris Simmons & Simmons, Hong Kong. In that arrangement, members of one company may, inter alia, agree to combine their company with another or the members may decide to split the company into two companies. A Scheme of Arrangement is a process used by a company in financial difficulty to reach a binding agreement with its creditors to pay back all, or part, of its debts over an agreed timeline. Home / Blogs and News Stories / Blog Post. References in this article to “plan of arrangement” refer to an arrangement transaction effected pursuant to a statutory arrangement. Arrangement to simple majority, An attractive alternative for court sanctioned debt Decisions and rulings of the Cyprus Court, are generally As mentioned above, a scheme of arrangement can be used for companies in financial trouble, allowing them to reach an agreement with their creditors and shareholders regarding payment of all, or part of their debts. This method of assigning position and relative levels of power provides advantages and yields disadvantages. If the required number agrees to the scheme, the court will then hold a ‘Sanction/Fairness Hearing’ to ensure all parties are represented. A scheme of arrangement under §425 of the Companies Act of 1985 is a procedure under which a company may make a compromise with its creditors or any class of them. To ensure the scheme is legally binding, the creditors must agree to the scheme in their classes. A Framework For Examination Of Personal Devices Under The Turkish Competition Authority's New Guidelines – How It Converges With And Differs From The EU Practice, Digital Securities Business Is About To Bloom, A Different Perspective To Employer`s Liability For Anti-Competitive Behaviors: Arçelik's Application For Leniency, Losing The Battle, Winning The War? SCHEME OF ARRANGEMENT In structuring a UK scheme of arrangement that involves the restructuring of existing securities and/or the offer of new securities, due consideration must be given to … case that the company is under liquidation the liquidator of the The key piece of documentation in a scheme of arrangement is . Pursuing a scheme of arrangement entails a 4-step procedure, Cyprus will cause decisions and rulings of the Cyprus Court to be A scheme of arrangement is often preferable to a judicial management in various situations. Under a scheme of arrangement, the Code Company must seek the approval of its shareholders and the Court to propose the scheme, usually following an initial approach by the offeror. LIQUIDATION, JUDICIAL MANAGEMENT & SCHEME OF ARRANGEMENT – PROCEDURE & PRACTICE CHANTAN LLC 2 • Section 210, Companies Act (Cap 50) provides for schemes of arrangement to be binding on creditors and members alike after the requisite approval by the specified majority and upon confirmation by the court. follow the guidance offered by decisions of other Common Law approved arrangement with the required cross-border enforcement and We need this to enable us to match you with other users from the same organisation, it is also part of the information that we share to our content providers ("Contributors") who contribute Content for free for your use. This Practice Note includes a summary table: Key advantages and disadvantages of offers and schemes, but for a more detailed look at the advantages and disadvantages, from the offeror’s perspective, of effecting a takeover by way of a scheme of arrangement, see Practice Note: Schemes of arrangement—advantages and disadvantages. Benefits of the Scheme. •Although similar to Company Voluntary Arrangement, in that a Scheme is, fundamentally, either a compromise or arrangement, a … required threshold for the creditors' approval of a scheme of Cyprus Companies Law, Cap. A scheme of arrangement is a court approved compromise or arrangement; it is entered into between a company and its creditors or members or any class or classes of them in accordance with section 411, Part 5.1 of the Corporations Act. Market Introduction: Schemes of arrangement. This article will outline what is a scheme of arrangement, and the reasons it may be suitable for your business. can discuss your business and provide initial free, confidential advice as to your next move. A scheme of arrangement can be used as a mechanism to provide a broad range of restructuring solutions including debt for equity swaps, new money, re-setting of payment terms and the release of security or guarantees. It can be tailored to novel or complex corporate structures or be used for major group reconstructions. This is a register which can be accessed free of charge. One notable example of refusal is if the creditors are not classified correctly. Minimum shareholder approval thresholds in each jurisdiction apply. Switzerland, Russia, Ukraine and China. Pursuing a scheme of arrangement in appropriate circumstances, An extremely broad variety of transactions can be effected pursuant to a plan of arrangement, including transfers of shares or assets, exchanges of securities, co… Disadvantage of a scheme of arrangement: The disadvantage of a scheme of arrangement is that it requires the preparation of elaborate documents and the observance of a strict procedure, including an initial and final application to the court and the holding of meetings. This offers the procedure the Our. The Debt Arrangement Scheme, like any debt management product, may affect your credit rating. Recent legislative enactments have amended section 198 of the The relevant provisions and scheme of arrangement timetable can be found under Part 26 and 27 of the Companies Act 2006. Before considering the scheme, we suggest seeking immediate, professional advice. General Advantages of Scheme of Arrangements. In Hong Kong, Singapore and the UK, takeovers and schemes of arrangement are the main methods by which acquisition of control of a publicly listed company is affected. As mentioned above, a scheme of arrangement can be used for companies in financial trouble, allowing them to reach an agreement with their creditors and shareholders regarding payment of all, or part of their debts. flexibility to incorporate terms in a scheme that would not be permitted under a takeover bid; and or an ‘arrangement’ between a company and its creditors and/or shareholders or some class(es) of its creditors or shareholders. simple majority in value of the creditors present and voting, and All Rights Reserved. 'Schemes of Arrangement is an informative and well-structured book. Governments, militaries and many corporations employ this type of organizational structure. (50%) in number of creditors, representing not less than seventy-five per cent. Market Introduction: Schemes of arrangement. In the past decade, schemes of arrangement have been used as an alternative to takeovers due to its commercial benefits, in particular its flexibility to adapt to the needs of companies. Scheme of arrangement is a 'compromise' or 'arrangement' between creditors or members and the company as the case may be. While it is not part of insolvency legislation, the procedure must be approved by the court under the Companies Act 2006. To ensure the scheme is legally binding, the creditors must agree to the scheme in their classes. If you enter into a DAS then your details will be recorded on the DAS register. Read this article – and more – for a one-week period. implementation tools. • A Scheme offers the additional scope of being for each class of creditor voting for the arrangement; and have
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