English Schemes Of Arrangement: Some Practical Advice For Proponents

Van Gansewinkel Groep BV, Re [2015] EWHC 2151 (Ch)

In what appears to be a growing trend, the High Court in England has sanctioned another scheme of arrangement involving non-English companies. Last week's judgment from Mr Justice Snowden joins an ever growing number of decisions by the English courts to sanction schemes where debtors do not have their centre of main interests, establishment or any significant assets in England. In this instance, the scheme was sanctioned on the basis that the English governing law clauses contained in the companies' financing agreements, constituted a "sufficient connection" with England. In addition to providing further evidence of the English courts readiness to sanction such schemes of arrangement, it provides some helpful advice for proponents of schemes.

What is a Scheme of Arrangement?

A scheme of arrangement is a tool which allows a company to restructure some or all of its debts outside a formal insolvency process by presenting a proposal and receiving agreement from the requisite majority of its creditors. Pan European companies have increasingly sought to restructure their debts by way of an English scheme as it offers a flexible and expeditious route that may not necessarily be available to them in their own jurisdictions. Generally speaking, effecting a scheme of arrangement is a three stage process which involves:

The holding of a convening hearing where the company or its creditors makes an application to the court for an order to convene a meeting/meetings of creditors so that the company's creditors can consider and vote on the company's proposals (the "Court-Convened Meeting"). A company can seek to "scheme" all its creditors, or only certain classes of them, classes are determined by the rights creditors have against the company. The court issued Practice Statement1, advises companies to raise any issues they may have relating to the composition of the classes of creditors at the convening hearing and to give notice to creditors of the convening hearing. The next step is the holding of the Court-Convened Meeting. This is where the company's creditors meet to consider and vote on the proposed scheme. A proposed scheme will be approved if a majority in number representing three-quarters in value of the creditors (or of each class of creditors) vote in favour. In advance of voting, creditors should be provided with an Explanatory Statement informing them of the effect of the scheme, the...