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distress, domestic, EU based, and from further afield. The scheme of arrangement is
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regulated as part of company law, and provides a very flexible restructuring mechanism.
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Typically, a valuation of the firm’s business will establish in which tranche – senior,
second lien or mezzanine – firm value breaks. Only the senior ‘in the money’ creditors

will partake in the scheme under which they will exchange their debt for equity and/or
new debt issued by a new corporate group. The scheme proponent applies to the court
for the summoning of class meetings. During the summons hearing the court ensures
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that class formation is appropriate. The second stage consists of the class meetings
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during which the respective classes of creditors vote on the scheme. Approval requires

a majority in number representing 75% in value of the creditors within each class.
Although the minority within a class may be outvoted, a scheme cannot be imposed on
a dissenting class. If all class meetings approve the scheme, the court conducts the
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sanctions hearing during which it will assess whether the scheme is fair to creditors
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generally. Upon delivery to the Registrar of Companies of the order sanctioning the
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scheme it becomes effective and binding on the scheme company and all scheme

creditors. 15
The ‘cramdown’ of an entire class can be achieved by combining a scheme with

a pre-pack administration. The function of administration generally is to place a
financially distressed company under external management for the benefit of all creditors

6 For example, Re McCarthy & Stone Plc [2009] EWHC 1116 (Ch); Re Bluebrook Ltd [2009] EWHC
2114 (Ch); Re Countrywide Plc [2009] EWHC 1347 (Ch).
7 For example, Re Hellas Telecommunications (Luxembourg) II SCA [2009] EWHC 3199 (Ch); Re
Rodenstock GmbH [2011] EWHC 1104 (Ch); Re APCOA Holdings GmbH [2014] EWHC 3849 (Ch); Public Joint-
Stock Company Commercial Bank ‘Privatbank’ [2015] EWHC 3299 (Ch); Re Codere Finance (UK) Ltd [2015]
EWHC 3778 (Ch); Primacom Holdings GmbH [2012] EWHC 164 (Ch).
8 For example, Bluecrest v. Vietnam Shipbuilding Industry Group [2013] EWHC 1146 (Comm).
9 Companies Act 2006, Pt. 26.
10 Ibid., s. 896.
11 Incorrect class formation may invalidate the scheme; Re Hawk Insurance Co. Limited [2002] B.C.C. 300.
12 J Payne, Schemes of Arrangement: Theory, Structure and Operation (Cambridge: CUP, 2014) 239–242.
13 Companies Act 2006, s. 899.
14 Re Bluebrook Limited [2010] B.C.C. 209. See Section §9.05 infra.
15 Companies Act 2006, s. 899(3).

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