What is meant by scheme of arrangement?
A scheme of arrangement (or a “scheme of reconstruction”) is a court-approved agreement between a company and its shareholders or creditors (e.g. lenders or debenture holders). It may affect mergers and amalgamations and may alter shareholder or creditor rights.
What are the main steps in a scheme of arrangement?
Key steps in a scheme of arrangement
- Initial Approach.
- Due Diligence.
- Scheme implementation agreement.
- Shareholder disclosure and approval process.
- Court approval and implementation.
How does a scheme of arrangement work?
A Scheme of Arrangement helps a company in the restructure of its debt, and aids recovery from financial distress. It is not an insolvency process and is utilised under the Companies Act 2006 rather than insolvency legislation, but it must still be sanctioned by court process.
What is scheme of arrangement in M&A?
A scheme of arrangement is a procedure that allows a company to reconstruct its capital, assets or liabilities with the approval of its shareholders and the Court.
What is a scheme of reconstruction?
From 17 April 2002, schemes of reconstruction include company partitions and certain other forms of corporate restructuring. The legislation is intended to ensure that there is no immediate charge to corporation tax on gains or Capital Gains Tax on either the Company or its shareholders on any disposal.
Is a scheme of arrangement a takeover?
An alternative to a takeover, a scheme of arrangement is a statutory process under Part 5.1 of the Corporations Act 2001 (Cth) (Corporations Act) which allows a company to be acquired or reorganise its share capital, assets or liabilities with shareholder and Court approval.
Is a scheme of arrangement an offer?
A scheme of arrangement is a statutory mechanism which is an alternative to a contractual offer. It is a formal arrangement between the target company and its shareholders, which is governed by the Companies Act 2006.
What is amalgamation and reconstruction?
Amalgamation is the process where two different business entities join together for the purpose of making a totally new business entity to sustain in the market by absorbing the other company. This process can also be referred as reconstruction as there is a new formation of completely new entity.
What is the difference between internal and external reconstruction?
Internal reconstruction is a method of corporate restructuring where an arrangement is made by the company of the organization where in changes in the assets and liabilities are made to improve the financial position without liquidating the company or transferring the ownership to external party, whereas external …
What is a scheme of arrangement takeover?
Under a contractual takeover offer, the bidder makes a general offer to all target shareholders. A scheme of arrangement is a statutory mechanism which is an alternative to a contractual offer. It is a formal arrangement between the target company and its shareholders, which is governed by the Companies Act 2006.
What is scheme implementation agreement?
In the context of a shareholders’ scheme of arrangement, an agreement signed by the bidder and target that sets out key terms and conditions on which the bidder will acquire the target’s securities. …
How does a scheme of arrangement work for a company?
A scheme of arrangement works by restructuring the company’s debts and varying creditors’ rights. For example, the creditors may agree to claim only a portion of instead of the full amounts owed to them by the company.
How does a pre packed scheme of arrangement work?
Under the Insolvency, Restructuring and Dissolution Act 2018 (IRDA), there is also a faster and less costly method of implementing a scheme of arrangement. Known informally as the “pre-packed” scheme, the court can approve a scheme fulfilling certain requirements even without calling a creditors’ meeting to vote on it.
How is a scheme of arrangement binding on all parties?
Once sanctioned by the Court, a scheme of arrangement is binding on all parties to the scheme and cannot subsequently be altered. This is even if the company’s shareholders and creditors agree to alter the scheme.
How can a scheme of arrangement be overridden?
A scheme of arrangement can be overridden only by proposing an entirely new one and undergoing the whole approval process again. The scheme may include terms on how it is to be terminated. For example, the terms of a scheme of arrangement may state that the scheme ends: At the scheme manager’s discretion.