Understanding a scheme of arrangement in Hong Kong

Scheme of Arrangement Hong Kong

A scheme of arrangement is a court-approved agreement between a company and its creditors or members to compromise their claims. Under the Companies Ordinance (Cap. 622), it provides a statutory framework for restructuring a company's affairs without proceeding to winding up. The scheme requires both court sanction and approval by a specified majority of creditors or members at a meeting convened by the court.

Hong Kong Restructuring Scheme

A restructuring scheme under the Companies Ordinance allows a company to propose a compromise with its creditors. This may involve reducing debt, extending payment terms, or converting debt into equity. The scheme is binding on all creditors or members who are entitled to vote, provided the required majority is achieved.

Court Sanctioned Arrangement HK

The court must sanction the arrangement before it becomes effective. It considers whether the statutory requirements have been met and whether the scheme is fair and reasonable. Once sanctioned, the arrangement binds all parties, including those who voted against it.

Company Compromise with Creditors HK

A compromise with creditors under a scheme of arrangement is an alternative to liquidation. The company may continue trading while implementing the restructuring. Creditors who would receive little or nothing in a winding up may achieve a better outcome through the scheme.

Scheme of Arrangement Process

The process begins with an application to the court for permission to convene meetings of creditors or members. At the meeting, the scheme must be approved by a majority representing 75% in value of those present and voting. The company then applies to the court for sanction. Once sanctioned, the scheme is delivered to the Companies Registry and published in the Gazette.

The scheme of arrangement is governed by sections 662 to 678 of the Companies Ordinance. A liquidator may also propose a scheme during a winding up, subject to the same voting and court approval requirements. A petition for winding up does not prevent a company from proposing a scheme, though the court will consider the circumstances of each case.