Scheme of arrangement
A Scheme of arrangement under Part 9 of the Companies Act 2014 is a procedure that allows a company to write off or defer debts and to deal with onerous leases and other contracts. Many of the outcomes associated with examinership can be achieved through a Part 9 Scheme, but with significantly less cost. Part 9 Schemes are much more accessible than examinership because a court order is not required to commence the process, and the company is not required to be either insolvent or to have a reasonable prospect of survival.
The steps to be taken by a company’s directors to implement a Part 9 Scheme are as follows.
- Formulate a scheme of arrangement setting out the compromises being sought from creditors. These will typically include debts being written off or deferred.
- Identify the different classes of creditors proposed to be affected by the scheme. The classes might typically include preferential creditors (eg. Revenue, Local Authority Rates, etc,), creditors secured by floating charges (eg. bank overdraft), and unsecured creditors (eg. trade creditors, landlords, etc.).
- Prepare a scheme circular explaining the effects of the proposed compromise and including certain prescribed information. It would be wise to include additional information setting out the basis on which the outcome for creditors will be better in the scheme than in a liquidation scenario.
- Summon meetings of each of the classes of creditors proposed to be affected by the scheme.The notices convening the meetings will include the scheme circular.
- Once the meetings have been summoned, the company may but is not obliged to apply to the Court for an order staying any ongoing legal proceedings and restraining the commencement of any new legal proceedings against the company. If the company’s creditors have neither commenced nor threatened legal proceedings then this step may be unnecessary.
- Hold the meetings of each of the classes of creditors. If 75% of those represented at each of the meetings approve the scheme then an application is made to the High Court to make the scheme binding on all of the company’s creditors.
- The scheme becomes binding on all creditors once it is sanctioned by the Court and notice of it being sanctioned is served on the creditors and on the CRO.
It is worth noting that the Revenue, local authorities, and government departments are explicitly permitted to vote in favour of Part 9 schemes.
For information about schemes of arrangement or to discuss how we can help you please contact Declan de Lacy at firstname.lastname@example.org or by telephone at 01 531 1111.