Vol 7 (2010) - Issue 6

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Schemes of Arrangement in the United Kingdom: More Change Needed?

Introduction
Part 26 of the Companies Act 2006 sets out the necessary steps for the procedure known as a scheme of arrangement. Schemes of arrangement have many uses, including 'complex restructuring plans such as acquisitions, group reorganisations, demergers and the removal of minority shareholders as schemes deal principally with the classes of creditor'. The most recent previous incarnation of this procedure was in section 425 of the Companies Act 1985. However, little has changed and the two are in 'substantially the same form'. Schemes of arrangement have been levelled with many criticisms including being cumbersome, expensive, overly-complicated and time consuming. This article will evaluate the scheme of arrangement as it currently stands and the case law which has been generated by it, followed by comparison with the Chapter 11 procedure in America along with possible changes and reforms to United Kingdom legislation, particularly in relation to a moratorium and valuation.
Schemes of arrangement are often seen in use by insurance companies who wish to bring long term exposures to an end. One of the reasons for this is that administration was not allowed for insurers under the Insolvency Act 1986, due to their far reaching nature if they have business overseas and their complexity. This would mean that the traditional insolvency procedures would not necessarily produce the best outcome for the company and its creditors. A scheme of arrangement also provides two attractions in that it is flexible and final. A company can tailor a scheme specifically to its needs as long as it is passed by the requisite majorities. Once the scheme has been fully approved by the courts it is binding on all creditors whether they voted or not due to the cram down, something which is very useful for insurers who may have thousand of creditors in the form of policyholders spread throughout the world6. The former position of unavailability has now been amended by section 360 of the Financial Services and Markets Act 2000 which enables administration for insurance companies.