A Scheme of Company Arrangement is a Court approved compromise or arrangement entered into between a company and its creditors or members. A Scheme of Arrangement has similar objectives to a Deed of Company Arrangement, but it is more complex and may be used by both solvent and insolvent companies. It is rarely used by insolvent companies these days, having been largely replaced by Deeds of Company Arrangement.
The four main steps in implementing a Scheme of Arrangement are:
- first Court hearing – the Court orders that meetings of affected creditors and/or members be convened
- creditors and/or members must approve the scheme by special majority
- second Court hearing – the Court then makes orders approving the scheme
- a copy of the Court’s order is lodged with the Australian Securities and Investments Commission (ASIC), from which time the scheme takes effect.
The nature of a Scheme of Arrangement allows for a more flexible approach to the structure of a transaction, as almost anything can be included in the scheme documents.
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