Schemes of arrangement
| Author | Elspeth Berry/Rebecca Parry |
| Pages | 23-39 |
Chapter 2
Schemes of Arrangement
An LLP, but not a partnership,
Schemes can provide a useful framework for the agreement of a composition or arrangement of the financial affairs of a struggling LLP, but they are not exclusively insolvency proceedings and they are also used for a variety of purposes by solvent companies and LLPs, including takeovers, demergers and insurance run-offs.
Solutions SAS [2014] EWHC 2365 (Ch), [2014] BCC 569.
2 BCLC 11; Re Magyar Telecom BV [2013] EWHC 3800 (Ch), (2013) 163(7588) NLJ 20; Re Zodiac Pool Solutions SAS [2014] EWHC 2365 (Ch), [2014] BCC 569; Re Apcoa Parking Holdings GmbH [2014] EWHC 3849 (Ch); see further Jennifer Payne, ‘Cross-border schemes of arrangement and forum shopping’ (2013) 14 EBOR 563–589) and a UK registered bank (Re Co-Operative Bank Plc [2013] EWHC 4072 (Ch), and [2013] EWHC 4074 (Ch)).
24 Law of Insolvent Partnerships and Limited Liability Partnerships
administration appointment. They can provide a framework for the agreement of a compromise or arrangement with creditors that can enable an LLP to exit from administration.
2.1 LEGISLATION
The statutory framework set out in the CA 2006 relating to schemes of arrangement
The modified provisions apply where an LLP proposes a compromise or arrangement with its creditors and/or members or a class of either.
(1) An application must be made to the court, and the court, at what may be termed the ‘meetings hearing’ will decide whether to make a ‘meetings order’.
(2) A meeting, or meetings, of creditors or members will be held to decide whether to approve the scheme.
(3) The court, at a ‘sanction hearing’, will decide whether to sanction the scheme.
Each stage serves a distinct purpose ensuring proper and fair consideration of the scheme. At the first stage, any matters which go to jurisdiction should be resolved, in order to prevent a scheme reaching the third stage and the court finding that it has no jurisdiction to sanction the scheme. In calling meetings, the court will consider in particular whether classes, which must be formed for voting purposes, have been adequately defined
At the third stage the court will consider whether the procedural requirements
have been met, whether the classes were fairly represented and whether the terms of the scheme are fair.
The above three stages are those that have been identified and adopted by the courts.
2.2 PROPOSAL
The scheme that is proposed by the LLP must be either a compromise or an arrangement. These terms should encompass most restructurings that might be contemplated, in particular since the courts have construed these terms broadly, as discussed below. A ‘compromise’ indicates the settlement of a claim, where there is ‘some question in controversy … or some difficulty in the enforcement to the uttermost farthing of the rights of the claimant’.
Provided that there is some element of give and take between the LLP and its members, the scheme should meet the definition of arrangement.
[1973] 1 All ER 135.
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In Re T & N Ltd and Others, David Richards J placed as wide a meaning as possible on the term ‘creditors’, an approach which was influenced by the need to enable a company to reach an arrangement with creditors so as to enable the company’s financial rehabilitation.
A scheme may also extend to claims which creditors have against third parties, such as insurers, where those rights are closely connected with the rights of creditors against the LLP; where those rights are personal, not proprietary; and where, if the rights are exercised and lead to a payment by the insurers, this will result in a reduction of the creditors’ claims against the LLP.
A scheme of arrangement involving creditors must, however, deal with the rights of debtor and creditor inter se.
Aside from the requirement that the scheme fall within the definition of either a compromise or an arrangement dealing with the rights of debtor and creditors (or members) inter se, there are few restrictions on what can be proposed. Naturally, the terms that are proposed should be sufficiently attractive to gain acceptance by the creditors or members and the court. The terms may need to achieve a careful balance between the interests of different classes of creditors, since the approval of each class is required.
One desirable inclusion in the terms of an arrangement may be provision for the future amendment of the arrangement’s terms,
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