Module 7.6 Part 26 Schemes of arrangement Flashcards
Who does a compromise or scheme of arrangement apply to?
its creditors or any class of them
or
its members or any class of them
Includes reorganisation of company’s share capital by the consolidation of shares of different classes or by division of shares into shares of different classes, or by both methods
Can a Part 26 scheme of arrangement be used by a solvent company?
Yes
What are the stages for a Part 26 Scheme of arrangement?
- Negotiations
- Practice statement letter
- Application to court
- Convening hearing
- Notice of Meeting(s)
- Meeting(s) of members and/or creditors
- Chairman’s report
- Sanctioning hearing
- Filing court order with Registrar of Cos
What is the similarity test?
Persons sufficiently similar that they can consult together with a view to their common interest, should be summoned to a single meeting
(Persons so dissimilar that they cannot sensibly consult together with a view to their common interest, must be given separate meetings)
Similarity based on legal rights against the company - Not broader private or commercial interests
What are the contents of a Practice Statement Letter?
that the scheme is being promoted
the purpose which the scheme is designed to achieve and its effect
the meetings of creditors and/ or members which the applicant considers will be required and their composition
the other matters that are to be addressed at the convening hearing
the date and place fixed for the convening hearing
that such persons are entitled to attend the convening and sanction hearings, and
how such persons may make further enquiries about the scheme
Sent allowing sufficient time to enable proper consideration/ take advice
What is the court order for holding of meeting? (convening meeting)/
The court may order a meeting of the creditors or class of creditors, or meeting of the members of the company or class of members (as the case may be) to be summoned in such manner as the court directs
Who can apply to the court for a meeting to be convened?
Application for meeting can be made by
the company (NOT DIRECTORS)
any creditor or member of the company
Iiquidator
administrator
NB if Part A1 moratorium then company applies, giving notice to monitor. (Court may order moratorium to be extended to such a date as is specified in the order)
NB Each class of affected creditors/ members meets separately
How must notice convening a meeting to consider a Part 26 scheme of arrangement be given?
Sent to creditors/ members
By advert
What must be provided to creditors/ members (as applicable) where a meeting is summoned to consider a Part 26 scheme of arrangement?
An explanatory statement. (Either with notice or details of how creditors or members entitled to attend the meeting can obtain it.
What must be in the explanatory statement?
The statement must explain the effect of the compromise or arrangement
In particular must state:
any material interests of the directors of the company (whether as directors or members or creditors or otherwise) and
the effect on those interests of the compromise or arrangement in so far as it is different from the effect on the like interests of other persons
Court will expect statement to be fair and provide sufficient information
Enabling creditors/ members to exercise their judgement
Explaining commercial impact of the scheme and alternatives if not approved
Where the compromise or arrangement affects the rights of debenture holders of the company, the statement must give the like explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the company’s directors
Who commits an offence in default off giving notice?
Default in giving notice/ making an explanatory statement is an offence
By the company
Every officer who is in default [e.g. director]
Including an insolvency office holder in default [e.g. liquidator or administrator]
Or a trustee of a deed for securing the issue of debentures
How long is the notice period for convening a meeting to consider a Part 26 scheme proposal?
No period specified - typically 21 days
What happens if somebody entitled to vote has objections?
Objections should be raised at the time
What is the requisite majority for a Part 26 scheme of arrangement?
2 stage majority within each class:
A majority in number of those present and voting
Representing 75% in value of those present and voting
When can the court decline to sanction a Part 26 scheme of arrangement?
if those participating do not fully represent the class E.g. if low participation; or
Creditors have not been provided with sufficient information to make an informed decision
When can the court sanction a Part 26 scheme of arrangement?
If a majority in number representing 75% in value of the creditors or class of creditors or members or class of members (as the case may be), present and voting either in person or by proxy at the meeting summoned under section 896, agree a compromise or arrangement, the court may, on an application under this section, sanction the compromise or arrangement.
Who can apply to the court to sanction a Part 26 scheme of arrangement?
the company
any creditor or member of the company
Liquidator
Administrator
Dissatisfied creditors/ members may oppose the sanctioning of the
scheme
What are the criteria for a court to sanction a Part 26 scheme of arrangement?
Jurisdiction – “sufficient connection”
Compliance with statutory procedures
Requisite majorities obtained
Scheme terms fair and reasonable
When does a court order for a Part 26 scheme of arrangement take effect?
The court’s order HAS NO EFFECT UNTIL a copy of it has been delivered to the registrar
Who is a Part 26 scheme binding on?
A compromise or agreement sanctioned by the court is binding on:
all creditors or the class of creditors or on the members or class of members (as the case may be)
and the company (or, in the case of a company in the course of being wound up, the liquidator and contributories of the company)
What is the impact of a Part 26 scheme of arrangement on Moratorium debts
The relevant creditors may not participate in the meeting summoned under section 896. But relevant creditors:
Are entitled to receive the explanatory statement; and
To attend the meeting
The court may not sanction the compromise or arrangement under section 899 if it includes provision in respect of any relevant creditor who has not agreed to it
What are the powers of court to facilitate reconstruction or amalgamation under Part 26?
The court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters
the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company
the allotting or appropriation by the transferee company of any shares, debentures, policies or other like interests in that company which under the compromise or arrangement are to be allotted or appropriated by that company to or for any person
the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company
the dissolution, without winding up, of any transferor company
the provision to be made for any persons who, within such time and in such
manner as the court directs, dissent from the compromise or arrangement
such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation is fully and effectively carried out
How long does a company have to deliver to the Registrar of Cos a copy of an order to facilitate reconstruction of amalgamation?
7 days
What are the obligations of a company with respect to articles etc?
If the order amends the company’s articles, or affects a company’s constitution
the copy of the order delivered to the registrar by the company…must be accompanied by a copy of the company’s articles, or the resolution or agreement in question, as amended
Every copy of the company’s articles issued after the order is made must be accompanied by a copy of the order unless the effect of the order has been incorporated into the articles by amendment
When might a company use a Part 26 scheme of arrangement?
Flexibility as to nature of scheme or compromise required: EG:
Debt refinancing no longer viable
Increasingly complex debt structures with syndicate lending
Multiple debtl ayers
Cross-border corporate structures
Debt for equity swaps
It is NOT an insolvency process
When can creditors object to the determination of classes for voting?
At the convening hearing
Court will assess whether the allocation of persons to classes has been carried out correctly at the sanctioning (convening) hearing
When a class is sanctioned, who does it bind?
All creditors/ members in that class (although more than 25% can vote against the proposal).
Will include a minority of SECURED creditors
What is the impact of a Part 26 scheme of arrangement on SECURED creditors
Classes of secured creditors can be bound into “new” lending terms
(Unlike CVA where secured creditors rights cannot be varied without consent.)
What is the role of the valuer in a Part 26 proposal?
Of central importance:
Where does economic interest lie?
What is value of company?
How is it valued?
Importance of valuation and method of valuation
Qualification and experience of the valuer?
Are there sufficient assets to pay entire debt or just certain classes?
Senior debt vs. junior debt
What is the role of an IP in a Part 26 scheme?
Not insolvency = no official role
BUT: The scheme may need a scheme supervisor/ administrator
Functions, powers and duties need to be defined
Getting in, realising and distributing scheme assets
Adjudicating claims
Monitoring compliance
Periodic reporting to committee and/ or scheme creditors
Attending meetings
Powers will be as defined in the scheme
How do you obtain protection from creditors whilst a Part 26 scheme is being proposed etc?
Use administration to obtain moratorium with Scheme as exit route?
Use moratorium process? –Limiting impact of “priority status”
