Scheme Of Arrangements: Fair And Reasonable

A scheme of arrangement is a compromise or arrangement between a company and its members or its creditors (or any class thereof) that – with the sanction of the court - is binding on all affected members or creditors. Schemes can be used in various types of transactions, including acquisitions, reorganisations, and in the restructuring of complex debt arrangements.

The basic elements of a scheme are:

application to the court to convene a meeting of the relevant members; publication of an explanatory statement and notice to the affected members to convene the meeting; approval of the scheme by the relevant members in general meeting; sanction of the scheme by the court; and filing of the court order (with scheme attached) with the Bermuda Registrar of Companies. The first hearing is on an Originating Summons whereby the company seeks directions from the court regarding the convening of a members' meeting to consider and vote upon the scheme. It is generally expected that a court would, on application, order the company to convene the general meeting. However, it will at this hearing consider, among other matters, the constitution of the members in question, and whether any expressed opposition to the scheme would prevent the necessary majority from being obtained (Re Savoy Hotel Limited [1981] Ch 351.)

As said by Kawaley J in the Bermuda case of Re APP China Group, Ltd. [2003] no. 381, "The court's role, then, on the hearing of a sanction petition (and indeed, in directing the summoning of the scheme meeting), is more akin to that of a football referee, than to a football player. It is not for a referee in a match where a goal is validly scored to disallow the goal because, if he had been the goalkeeper, he would have prevented a goal from being scored, or, because he supports the team against which the goal was scored. Equally, it is not for the court to decline to sanction a scheme because it would have found it unpalatable as a scheme creditor and would have voted against it. If the statutory requirements have been met, and the guiding principles set out in the case law have been adhered to, it is not open to the court to decline to sanction the scheme on what may be called 'merits' grounds."

Section 99 of the Bermuda Companies Act 1981 (the "Act") provides for the convening of meetings of members, or any class of members, of a company (or, where appropriate, its creditors) at the direction of the court for the purpose of considering and...