What goes through your mind when the term (in relation to a company) “scheme of arrangement” or SOA is brought up? In this article, we will briefly share with you what is an SOA.
What Is A Scheme Of Arrangement?
A scheme of arrangement is an agreement entered between a company and its creditors/ shareholders/ members to implement various corporate exercises for the betterment of the company. For example, SOA can be used to1:
- Facilitate possible corporate exercise or transactions, such as the reorganization of its share capital, rights and liabilities of members, and transfer the assets of one company to another; or
- Transfers of all or a specified proportion of each shareholder’s securities to a bidder, cancellations of existing securities or issues of new securities to a bidder such as effecting a change of control/ merger or amalgamation of companies.
However, such a scheme must be approved by the required number of shareholders in a meeting and is sanctioned by the court before the SOA can be implemented by the company.
The Law In Relation To SOA
|What is the first step?||Obtain leave from the court to summon a meeting between the company and its members/ creditors2.|
|Who can apply3?|
|What happens during the meeting?|
|What happens after the meeting (assuming that the SOA is agreed upon by the majority of parties involved)?|
|Who is it binding upon8?||Everyone that has an interest in the company i.e.:|
|What else can the court do?||The court can actually order that no further legal proceedings (restraining order) can be instituted against the company for a period of 3 months and an additional 9 months upon an application to extend by the company9, provided that10:|
Pros Of A SOA
- Allows the company to be restructured (for the betterment of the company) with the consent of the majority of the parties that have an interest in the company.
- It provides a high degree of certainty as to the scheme, once sanctioned by the court, is binding to all members.
- It is a compromise between the members of the company and the company itself- allowing all parties (to a certain extent) to walk away with something in hand. This applies especially if the company is being wound up.
- Allowing companies to avoid consequences of entering insolvency/ allows companies to continue trading without having the fear of being threatened or harassed by its creditors.
- Prevents/ avoids negative publicity and loss of goodwill as compared to if the company were to be wound up and the winding-up is made public to the general population.
Need advice regarding SOA? Use the button below:
1. M.A.Khan, Shareholder’s Protection under Scheme of Arrangement and Takeovers.
2. Section 366 (1), Companies Act 2016.
3. Section 366 (1)(a)-(d), Ibid.
4. Section 366 (2), Ibid.
5. Section 366 (4), Companies Act 2016.
6. Section 366 (5), Ibid.
7. Section 366 (6), Ibid.
8. Section 366 (3), Ibid.
9. Section 368(1), Ibid.
10. Section 368 (2)(a), Ibid.
Source of Image: Freepik