Is your company facing financial challenges?
A Scheme of Arrangement (Scheme) can serve as a valuable mechanism to address these obstacles and steer your business towards recovery. Below is an overview of what a Scheme entails and the potential benefits it offers to your company.
What is a Scheme of Arrangement?
A Scheme of Arrangement is a method employed by a company facing financial challenges to formalize a binding agreement with its creditors, outlining a structured repayment plan for all or a portion of its debts within a specified period
Who can benefit from a Scheme?
- Companies with high debt levels: If your debt burden is significant, a Scheme can help restructure your finances and create a more manageable repayment plan.
- Companies needing restructuring: Schemes can be used to reorganize your business operations, making them more efficient and sustainable.
- Companies facing trading difficulties: A Scheme can provide temporary relief from creditor pressure while you implement a turnaround strategy.
- Companies under creditor pressure: A Scheme can be a way to negotiate a more favorable debt repayment plan with your creditors.
- Companies seeking to avoid liquidation: Schemes can be a viable alternative to closing down your business entirely.
How does a Scheme work?
- Develop a proposal: Your company will create a plan outlining how you will repay your creditors.
- Creditor communication: The proposal is then sent to your creditors, along with a notification for a meeting to discuss the details.
- Creditor meeting: At the meeting, your company will present the proposal and answer any questions from creditors.
- Creditor vote: Creditors will then vote on whether to approve the Scheme.
- Court approval: If the majority of creditors vote in favor, the court will need to give its final approval.
- Debt reduction: Once approved, the Scheme becomes legally binding, and your debts will be reduced as agreed upon in the plan.
Advantages of a Scheme of Arrangement
- Reduced costs: Recent changes have made Schemes more affordable due to less court involvement.
- Significant debt reduction: Schemes can offer substantial relief from your debt burden.
- Maintain control: Your directors can typically remain in control of the company during the process.
- Continued operations: Your business can keep operating while the Scheme is implemented.
- Avoid liquidation: A successful Scheme can help your company avoid closure.
