Scheme of Arrangement
Scheme of Arrangement
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A Scheme of Arrangement under Section 366 of the Companies Act 2016 (“SOA”) is essentially a court-approved mechanism whereby a compromise or arrangement is proposed between a company in distress and its creditors, to vary existing rights and obligations. An SOA application can be applied by either the Company, the members of the Company, the Company’s creditor(s), a liquidator or a Judicial Manager.
Under the SOA framework, Companies are allowed to apply for a restraining order to restrain legal proceedings against the Company. The restraining order protects the Company from creditors’ actions, to allow for a successful restructuring of the company’s debts.
For an SOA application to be successful, a preliminary compromise or arrangement plan is required to be submitted. The court will then grant Restraining Orders for an initial period of three (3) months, which may be renewed for a period of up to a further nine (9) months subject to the court’s discretion.
As opposed to the protection provided under Judicial Management (“JM”), which comes into effect immediately upon filing of the JM application, protection under an SOA is granted only upon obtainment of the Restraining Order.
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Appoint?
Who can Apply
- Shareholder
- Director
- Creditor
- Judicial Manager
- Liquidator
Scheme Manager or Indenpendent Appraiser
To come out with a settlement proposal/to appraise the proposed scheme of compromise and/or arrangement/ to implement the approved and sanctioned scheme of arrangement by scheme creditors and court respectively. The powers of management remain with the board of directors of the debtor company.
Appoint?
Who can Apply
- Director
- Creditor
Judicial Manager
To avoid being wound up, debtor company will be protected against legal actions/winding up upon filing of appointment of a judicial manager with court. Court must be satisfied that the company is able to be turned around and the majority creditors must approve the settlement arrangement and pay creditors. The power of management will be vested upon the Judicial Manager.
Appoint?
Who can Apply
- Director
- Judicial Manager
- Liquidator
Nominee
To avoid being wound up, debtor company will be protected against legal actions/winding up upon filing of appointment of a nominee. Nominee will put up a settlement proposal to be approved by majority creditors. Corporate Voluntary Arrangement will not be possible if there is a secured creditor. The powers of management remain with the board of directors.
Appoint?
Who can Apply
- Individual Debtor
Nominee
To avoid being declared as bankrupt, a nominee appointed must be able to convince majority creditors to approve a settlement proposal and pay creditors. Only possible if the debtor is not bankrupt.