Scheme of Arrangement
What is a Scheme of Arrangement?
Under s449 to s455 of Companies Act 2014, a scheme of arrangement is a statutory compromise or arrangement, between a company and its creditors or members. Creditors and members are organised into classes and a compromise may be organised for some or all of the classes.
Class members must have sufficiently common rights to enable them to consult together in relation to the proposed scheme.
Once a scheme is approved by the creditors who are being compromised, it will need to be approved by the Court and it does not become binding until a copy of the court order has been delivered to the registrar of companies which must take place within 21 days. Notice of the passing of the resolutions approving the schemes, and the application to have the scheme sanctioned by the court must be advertised once in at least two daily newspapers.
Advantages of Schemes of Arrangement over Examinership
An arrangement is much cheaper than an Examinership because there are:
-No Independent Accountants Report (€5,000 + VAT)
-No Petition costs (€20,000 + VAT)
-No Examinership costs. (€50,000 + VAT.) In a Scheme of arrangement legal costs are strictly only necessary if creditors vote in favour of Scheme.
In an arrangement, there is less publicity because the existence of the Scheme is only advertised if the creditors approve it.)
Directors/shareholders do not lose control of the business whereas they may lose control under an Examinership
The scheme may require to deal with only a single class of creditor.
There is no investigation of the company’s affairs like in an Examinership and there are no reports to the ODCE by the scheme arranger
The business does not have to be viable as required in an Examinership
There are no statutory deadlines to comply compared to an Examinership
Disadvantages of Schemes of Arrangement over Examinership
There is no protection against Receivership and the dominant creditor, the bank, may appoint one. So the company must have bank approval before attempting an arrangement.
There is no protection against Reservation of Title claims by creditors, who can take their stock back.
There are higher voting thresholds than in an Examinership. For an arrangement a majority in number and 75% of creditors of each class going to vote and being compromised. In an Examinership it is a majority in number and value of the claims represented at the meeting.
The arrangement cannot repudiate leases.
In an arrangement, it might not be possible to get all classes of creditors to vote in favour. Whereas in an Examinership, only one class of creditor being compromised is needed to vote in favour as the scheme for it to be accepted.
At D V Mannion & Co, we can provide advice and assistance to SME’s at an efficient cost in putting together an arrangement and ensuring this is implemented and approved by the Court. We have extensive experience as Personal Insolvency Practitioners in implementing such schemes which are similar in nature to schemes of arrangement under s s449 to s455 of Companies Act 2014.
Rose Marie Keaveney ACA