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Scheme of Arrangement

A scheme of arrangement is a useful tool for limited companies encountering financial difficulty or which require restructuring of its capital, assets and/or liabilities. It may also be utilised by a company who wish to carry out an orderly winding-down of its trade.

Such schemes can be conducted either formally or informally.

A formal scheme is prepared by company directors and their advisors and is approved by the Court.

An informal scheme is presented by directors to members and creditors for approval and is outside of the ambit of the Court. An informal scheme is suited to companies dealing with a limited number of creditors and where support is likely to be forthcoming.

Often, new monies are introduced via members, directors or by a third party investor. If continuing to trade, the company must have sufficient working capital to deal with operating expenses during the course of the scheme.

Formal schemes are binding on all creditors, once approved by 75% of creditors entitled to vote and voting. Informal schemes require the consent of all impacted creditors.

The benefits of a scheme of arrangement include:

Less costly and less publicity in comparison to an examinership
Less onerous than an examinership e.g. no requirement to prepare an independent expert’s report or satisfy the Court of a reasonable prospect of survival
Company can continue to trade both during and after a scheme
If conducted for the purposes of winding-up, investigation into the conduct of directors is avoided, unlike in insolvent liquidations.

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