Scheme of arrangement

What a scheme can do

A scheme can reorganise debt, shareholder rights or a wider transaction within the statutory framework. The scope is flexible, but the proposal must define who is affected and how their rights will change. Solvent mergers or reorganisations and distressed debt restructurings can use the same broad mechanism.

A scheme should be distinguished from a Part 26A restructuring plan. A scheme does not require the same financial-difficulty gateway, but it lacks the plan’s power to override an entire dissenting class under cross-class cram down.

Class meetings and the court

An applicant asks the court to convene meetings of the appropriate classes. People whose legal rights are sufficiently different may need separate classes. Explanatory information enables each class to evaluate the proposal and its consequences.

The usual creditor scheme vote requires a majority in number representing at least 75% in value of the class present and voting. The court must then decide whether to sanction the scheme. Special statutory provisions may modify requirements for particular transactions or classes.

What stakeholders should examine

A creditor should check the legal identity of the company, the claim and voting process, class allocation, the release or alteration proposed and the evidence supporting the alternative outcome. The proposal may contain conditions that must be met before it becomes effective.

Objections and challenges need to be addressed within the court timetable. A court-sanctioned scheme can bind a dissenting minority within an approving class, but ordinary Part 26 approval does not provide a general route to bind a class that has rejected the scheme.

Management, enforcement and completion

Directors generally remain in control unless another process applies. Launching a scheme does not itself create the administration moratorium or the standalone corporate moratorium. Any protection against enforcement must be identified separately.

The scheme takes effect through the statutory filing and its terms. Implementation can involve payments, new securities or asset transfers. Cross-border recognition, regulated businesses and tax consequences fall outside a basic process comparison and need specialist assessment.

The Scottish framework

Part 26 applies to Scottish companies, with the appropriate court process, commonly involving the Court of Session where it has jurisdiction. The company-law mechanism is distinct from Scottish personal insolvency and the Debt Arrangement Scheme.

Class composition, explanatory material and sanction are matters for the proper court. An English scheme timetable should not be copied into Scottish proceedings without checking local requirements.

The process, at a glance

1. Design the arrangement. Identify affected rights, voting classes, funding and conditions.Process stage — practical timing varies
2. Court directs class meetings. The court considers jurisdiction and the proposed meeting process.Statutory milestone — check its trigger and exceptions
3. Classes receive information and vote. The statutory majorities and court directions govern each class decision.Statutory milestone — check its trigger and exceptions
4. Court considers sanction. The court decides whether the scheme should be sanctioned; a favourable vote alone is insufficient.Statutory milestone — check its trigger and exceptions
5. File and implement the scheme. The required delivery and conditions bring the scheme into effect before the transaction steps are performed.Statutory milestone — check its trigger and exceptions