This client briefing provides a general overview of schemes of arrangement for Guernsey companies under the Companies (Guernsey) Law, 2008 (the Companies Law). A scheme of arrangement can involve almost any kind of corporate reorganisation, merger, acquisition or restructuring so long as the appropriate approvals and court sanction are obtained. In the context of restructurings, there is limited precedent in Guernsey, although such schemes of arrangement can be used to assist in insolvent/quasi-insolvent restructurings.
What is a scheme?
A scheme of arrangement is a procedure available under the Companies Law through which a company may make a compromise or an arrangement (a Scheme) with its creditors, or members, or any class of them. Sections 105 to 112 of Part VIII of the Companies Law specifically provide for such schemes.
A scheme can include a reorganisation of the company's share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods. It also provides a mechanism to settle an arrangement with a class of creditors where not all of those creditors agree to the proposals; this can be a particularly useful tool in the context of near insolvent restructurings. A scheme can be used in conjunction with an administration to obtain a moratorium on proceedings against the company although, in an administration in Guernsey, rights of set off, secured interests and rights of enforcement thereof are unaffected by the moratorium.
Features of a scheme of arrangement in Guernsey
The Royal Court of Guernsey (the Court) has the power, on an application made by the company (or any creditor, member, liquidator or administrator of the company, or, if a cell of a protected cell company has a receivership order in force, the receiver) to order a meeting of the creditors or class of creditors, or of the members or class of members (as the case may be) to be summoned in such manner as the Court directs to consider a scheme.
If a majority in number representing 75% in value of the members or class of members (excluding any shares held as treasury shares) or creditors or class of creditors (as the case may be), present and voting either in person or by proxy at the meeting, agree a compromise or arrangement, the Court may sanction the compromise or arrangement.
In exercising its discretion, the Court may consider whether the majority is acting in good faith in the interests of the creditors or class of creditors, or members or class of members (as the case may be) it professes to represent, and whether the different interests of creditors or members are such that they should be treated as belonging to a different class of creditors or members. Issues as to the Court's exercise of its discretion to approve Schemes are likely to be resolved by reference to English authorities which are persuasive in the Court.
A Scheme sanctioned by the Court is binding upon all creditors or class of creditors, or on the members or class of members (as the case may be).
There is no automatic stay on proceedings in connection with a scheme.
Where a meeting is summoned, every notice summoning the meeting that is sent to a creditor or member must be accompanied by a statement explaining the effect of the Scheme and, in particular, state any material interests of the directors of the company (whether directors, members, creditors or otherwise), and the effect on those interests of the compromise or arrangement, in so far as it is different from the effect on the like interests of other persons. Every notice summoning the meeting that is given by advertisement must either include such a statement or state where and how creditors or members entitled to attend the meeting may obtain copies of such a statement.
Every company in relation to which an order is made must cause a copy of the order to be delivered to the Registrar within seven days after its making and a company which fails to comply with this requirement is guilty of an offence and liable to a daily default fine.
The advantages of a Scheme are that if the appropriate approvals and court sanction are obtained, they are binding on all the creditors (or class of creditors), including secured and preferential creditors (if that is the class affected), or on all the shareholders (or relevant class of shareholders). In the current economic climate, we expect to see increasing use of Schemes as alternatives to consensual restructurings, as well as for a wider range of corporate transactions.