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For businesses navigating English insolvency law, understanding what a scheme of arrangement entails can be instrumental in safeguarding their interests. The term "Scheme of Arrangement" is commonly referred to in insolvency and restructuring. 

In this article, we’ll explain what a Scheme of Arrangement is, how it works, who can propose it, who should consider it, its timeline, recognition under the UNCITRAL Model Law, and how to account for it.

What is a Scheme of Arrangement?

A Scheme of Arrangement, often referred to simply as a "Scheme", is a legal procedure under English insolvency law that allows a company to reach an agreement with its creditors and shareholders to restructure its debts or affairs. It’s a court-approved mechanism designed to facilitate compromise and arrangements between a company and its stakeholders.

How does a Scheme of Arrangement work?

A Scheme of Arrangement typically follows a structured process:

  • Proposal
  • Meetings
  • Court approval
  • Implementation


The process begins with the company proposing a Scheme of Arrangement to its creditors or shareholders. This proposal outlines the terms and conditions of the proposed arrangement.


Meetings are convened to seek approval from the affected classes of creditors or shareholders. The vote in favour of the Scheme must meet certain statutory thresholds.

Court approval 

If the required majority votes in favour of the Scheme of Arrangement, the proposal is presented to the court for approval. The court ensures that the process has been conducted fairly and transparently.


Once approved, the Scheme of Arrangement becomes binding on all creditors and shareholders, including those who voted against it. It’s then implemented, and the company works to meet its obligations per the Scheme's terms.

Advantages of a Scheme of Arrangement

A Scheme of Arrangement offers several significant advantages, making it an attractive option for businesses, especially small enterprises, facing financial challenges. Here are the key benefits:

  • Avoids liquidation
  • Debt reduction 
  • Court protection
  • Flexible terms 
  • Cross-border recognition 
  • Preserves business value
  • Shareholder protection
  • Creditor compromise
  • Stakeholder involvement
  • Preservation of jobs

Avoids liquidation

One of the key advantages of a Scheme of Arrangement is that it provides an opportunity for a struggling business to avoid liquidation. Instead of closing down and selling off assets, the company can restructure its debts and continue operations.

Debt reduction 

A Scheme of Arrangement allows for the reduction of debt obligations, making it more manageable for the business to meet its financial commitments. This can be crucial for preserving cash flow and ensuring the company's long-term viability.

Court protection

Once approved by the court, the Scheme of Arrangement becomes legally binding on all creditors and shareholders, including those who didn’t vote in favour. This provides a high level of legal protection and certainty for the company.

Flexible terms 

The terms of a  Scheme of Arrangement can be tailored to suit the specific needs of the business and its creditors. This flexibility allows for creative solutions and compromises that can benefit all parties involved.

Cross-border recognition 

A Scheme of Arrangement can be recognised under the UNCITRAL Model Law on Cross-Border Insolvency for businesses involved in international operations, ensuring its enforceability in foreign jurisdictions. This can be beneficial for businesses with international operations. 

The Cross-Border Insolvency Regulations 2006 also further support the classification of creditors into different classes, allowing for tailored compromises. This framework encourages creditor cooperation, potentially leading to higher acceptance rates and a smoother restructuring process.

Preserves business value

By avoiding liquidation, a  Scheme of Arrangement helps preserve the value of the business, including its assets, brand reputation, and customer relationships. This can be helpful for companies looking to recover from financial difficulties.

Shareholder protection

The Companies Act 2006 states that shareholders have a say in the approval process of a Scheme of Arrangement, protecting their rights and interests. While shareholders may not always vote in favour of a Scheme of Arrangement, the court's approval process guarantees a fair and transparent outcome.

Creditor compromise

A Scheme of Arrangement provides for the classification of creditors into different classes, enabling tailored compromises for each class. This encourages creditor cooperation and may lead to a higher chance of acceptance.

Stakeholder involvement 

Involving creditors and shareholders in the approval process fosters communication and negotiation, potentially leading to better long-term relationships and business stability.

Preservation of jobs 

By avoiding liquidation or abrupt closures, a Scheme of Arrangement can help protect jobs and the livelihoods of employees, contributing to economic stability within the community.

Who may propose a Scheme of Arrangement?

Any company, including small businesses facing financial distress and needing restructuring, can propose a Scheme of Arrangement. This provides an inclusive approach for businesses looking to find a way out of financial difficulties while considering the interests of their creditors and shareholders.

Who needs to consider a Scheme of Arrangement?

If your business is facing financial difficulties, it should consider the option of a Scheme of Arrangement. It provides a legal route for your company to address its financial challenges, potentially avoid insolvency, and preserve your business operations. It's particularly useful for those looking for a formal and court-approved restructuring plan.

How long does a Scheme of Arrangement take?

The duration of a Scheme of Arrangement can vary significantly depending on the complexity of the arrangement, the number of stakeholders involved and other factors. However, completing the entire process typically takes a few months, from proposal to court approval.

Can a Scheme of Arrangement be recognised under model law?

Yes, a Scheme of Arrangement can be recognised under the UNCITRAL Model Law on Cross-Border Insolvency. This recognition is vital for businesses engaged in cross-border restructurings. It ensures that the Scheme of Arrangement is enforceable in foreign insolvency proceedings and provides a degree of harmonisation in cross-border insolvency regulations.

How to account for a Scheme of Arrangement

When a Scheme of Arrangement is implemented, businesses must account for it in their financial statements. It’s important to disclose the details of the Scheme of Arrangement, including its impact on the company's financial position and operations. Accurate accounting ensures transparency and compliance with relevant accounting standards.

Get legal assistance from LawBite

A Scheme of Arrangement is a valuable tool in English insolvency law, offering a structured and court-approved approach to debt restructuring. If your business faces financial difficulties, you’d consider this option to navigate the complex terrain of insolvency and restructuring.

Recognised under the UNCITRAL Model Law, it also provides a solution for cross-border insolvency proceedings. By understanding the process and implications of a Scheme of Arrangement, businesses can make informed decisions to protect their interests and secure their future. To speak to one of our expert lawyers about a Scheme of Arrangement or other insolvency options, book a free 15 minute consultation or call us on 020 3808 8314.


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In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.

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