When you hear “scheme of arrangement” in company law, you may naturally think of the examinership process, but almost thirty years before examinership came into the Irish legal framework, our company law provided for a procedure where claims against a company could be compromised, or arrangements with creditors arrived at, and this procedure was contained in Section 201 of the 1963 Act.
The Section 201 process gave creditors (and members) more protection than examinership because there had to be at least 75% support among them to approve a scheme.
The essence of Section 201 was to allow a compromise of the company’s liabilities to creditors, or a rearrangement of the company’s capital structure.
When the Company Law Review Group (“CLRG”) came to look at how these schemes of arrangement worked, it found two main shortcomings:
- Parties had to initiate two separate legal proceedings to convene the scheme meetings and to approve the scheme.
- The matter had to be brought before the court three times (convening the meeting, seeking directions in relation to advertising the petition, and getting approval of the scheme).
So what the new Act seeks to do is streamline the process.
The defined terms for this part of the Act are set out here – Section 449.
Now court approval is no longer needed to convene scheme meetings of creditors or members, if the meetings are convened by the directors (Section 450). This gets rid of one of the two separate legal proceedings and one of the court hearings.
If the directors are not the ones calling the meetings, court involvement remains.
The Court has the power to put a stay on all proceedings against the company (Section 451).
Where a scheme meeting has been convened, certain information must be sent to members and creditors. Precisely what information must be sent is set out here (Section 452). Practitioners will note that there are certain changes of language (“scheme circular”, “debenture trustee”, “a scheme meeting” are introduced as replacements of, often, longer phrases). Shadow and de facto directors are included in all references to directors.
When will the compromise or arrangement become binding on the creditors and members? Section 453 provides for a vote, notice in at least 2 daily newspapers, and court sanction.
Once a scheme is passed, there is a requirement to deliver a copy of it to the CRO within 21 days, which is set out here – Section 454.
The provisions which facilitate reconstruction and amalgamation of companies were up to now found in Section 203 of the 1963 Act, and are now found here (Section 455), without any very important changes.