INV - Schemes of Arrangement
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Questions and Answers

What is the primary objective of a Scheme of Arrangement under the Companies Act?

  • To terminate the operations of the company
  • To facilitate the liquidation of the company
  • To modify the rights of shareholders
  • To provide a framework for the company's debt restructuring (correct)

Which section of the Companies Act specifies who can apply for a Scheme of Arrangement?

  • Section 211
  • Section 212
  • Section 64
  • Section 210(2) (correct)

What is the significance of the automatic interim moratorium under Section 64 of the IRDA?

  • It permanently halts all company operations
  • It allows creditors to claim immediate repayment
  • It suspends all legal proceedings against the company during a scheme application (correct)
  • It requires immediate asset liquidation

What must be included in the notice of the meeting after leave is granted by the Court?

<p>A full and frank explanatory statement (C)</p> Signup and view all the answers

According to the dissimilarity principle, what is required for the overall fairness of a Scheme of Arrangement?

<p>Equitable treatment that reflects the differences in creditor classes (A)</p> Signup and view all the answers

What threshold is required for creditor support under Section 210(3AB) of the Companies Act?

<p>Three-fourths in value of present and voting creditors (A)</p> Signup and view all the answers

In the context of the Scheme Meeting, what is essential in the documents submitted?

<p>Comprehensive financial information of the company (A)</p> Signup and view all the answers

What is a critical factor that the Court considers when approving a Scheme of Arrangement?

<p>The overall fairness of the scheme to all creditor classes (C)</p> Signup and view all the answers

What is the purpose of the explanatory statement in the notice of the scheme meeting?

<p>To detail the mechanics of how the scheme will be executed (D)</p> Signup and view all the answers

What does the term 'creditor classification' refer to in the context of a Scheme of Arrangement?

<p>Differentiating creditors based on the nature of their claims and interests (A)</p> Signup and view all the answers

What is a major reason the court may refuse to sanction a scheme?

<p>Inadequate transparency in related company debts (C)</p> Signup and view all the answers

What effect does a court order approving a scheme have on dissenting creditors?

<p>They are bound by the terms of the scheme. (D)</p> Signup and view all the answers

Which term describes the act of releasing or compromising third parties' obligations within a scheme?

<p>Scheme incorporation (D)</p> Signup and view all the answers

What typically leads to the termination of a scheme?

<p>Completion of the scheme's implementation (A)</p> Signup and view all the answers

What is a requirement for a company to obtain scheme approval without holding actual creditors' meetings?

<p>Satisfaction of Section 71 of the IRDA (D)</p> Signup and view all the answers

What must occur after the court sanctions the scheme for it to become effective?

<p>The company must lodge the court order with the Registrar of Companies. (B)</p> Signup and view all the answers

What is primarily assessed by the court during the application to convene a creditors' meeting?

<p>Whether the meeting should be called and how it should be conducted. (A)</p> Signup and view all the answers

What can lead the court to refuse granting leave to convene a creditors' meeting?

<p>No realistic prospect of the scheme receiving approval. (A)</p> Signup and view all the answers

What details must an explanatory statement include regarding the company's directors and shareholders?

<p>Any material interests related to the scheme. (B)</p> Signup and view all the answers

Why is the classification of creditors essential in the context of a Scheme of Arrangement?

<p>It is required for establishing voting rights in the scheme. (B)</p> Signup and view all the answers

What is the initial duration of the moratorium that arises automatically upon applying for an in-train?

<p>30 days (B)</p> Signup and view all the answers

Which aspect is NOT a typical consideration by the court in the application process?

<p>The potential impact of the scheme on the company's market position. (B)</p> Signup and view all the answers

What must be included in the notice of the creditors' meeting after leave has been granted?

<p>The nature of the proposed scheme. (D)</p> Signup and view all the answers

What must a company demonstrate to comply with requirements for an interim moratorium?

<p>Creditor support evidence (B)</p> Signup and view all the answers

What is the nature of the application to court regarding the scheme?

<p>It is an Ex Parte application via originating summons. (C)</p> Signup and view all the answers

Which of the following best describes the scope of the moratorium as specified in the IRDA?

<p>Stay against legal and enforcement action by creditors (C)</p> Signup and view all the answers

What opportunity does the company have while the moratorium is in force?

<p>To work with advisors and creditors to formulate a scheme (A)</p> Signup and view all the answers

What standard of disclosure is expected from the company during the court application?

<p>Minimal level of disclosure. (C)</p> Signup and view all the answers

In which scenario may the court form a view on the merits of the scheme?

<p>The court does not assess the scheme's merits at this stage. (C)</p> Signup and view all the answers

Upon receiving leave from the court, what is the company's next step regarding the creditors?

<p>Put the proposed scheme before creditors for voting (C)</p> Signup and view all the answers

What is the requisite threshold for creditors' approval of a proposed scheme of arrangement?

<p>Three-fourths of creditors by value, present and voting (D)</p> Signup and view all the answers

What may the moratorium extend to in certain cases concerning creditors outside of Singapore?

<p>Prohibition of legal actions by those creditors (C)</p> Signup and view all the answers

Which of the following is NOT a requirement for a company to obtain a moratorium?

<p>A completed repayment plan (B)</p> Signup and view all the answers

What is implied by the principals set out by the Singapore High Court in IMS Galgan regarding the in-train process?

<p>The process must align with established legal principles (D)</p> Signup and view all the answers

Which statement about the moratorium related to schemes of arrangement is correct?

<p>It restricts both local and foreign creditors from taking legal action. (B), It requires court approval to extend its duration. (D)</p> Signup and view all the answers

What requirement must a company fulfill to obtain an interim moratorium?

<p>Evidence of creditor support and a description of the proposed scheme. (A)</p> Signup and view all the answers

How does the cross-class cramdown mechanism function in relation to a scheme of arrangement?

<p>It enables the approval of the scheme even if one class does not agree. (A)</p> Signup and view all the answers

Which of the following is NOT a potential reason for a scheme to terminate?

<p>Unilateral decision made by any creditor class. (D)</p> Signup and view all the answers

Who primarily initiates the scheme of arrangement process in Singapore?

<p>The debtor company seeking reorganization. (A)</p> Signup and view all the answers

What is the classification principle for creditors during the approval of a scheme?

<p>Creditors are classified based on dissimilarity to ensure equitable treatment. (C)</p> Signup and view all the answers

What role does the court play in the scheme of arrangement approval process?

<p>The court provides formal approval after creditors meet the required majority. (A)</p> Signup and view all the answers

Which legislation outlines the procedures for schemes of arrangement specifically for insolvent companies?

<p>Section 63 to 72 of the Insolvency Dissolution Act (IRADA). (D)</p> Signup and view all the answers

What principle is used to classify creditors into separate classes based on rights dissimilarity?

<p>Dissimilarity Principle (D)</p> Signup and view all the answers

Which of the following scenarios requires separate creditor meetings?

<p>Creditors with dramatically different claim types (D)</p> Signup and view all the answers

What is necessary for a scheme to be approved when not all classes meet the requisite majority?

<p>At least one class must approve the scheme (D)</p> Signup and view all the answers

What happens to the minority creditors if the majority votes in favor of the proposed scheme?

<p>They are bound by the scheme (C)</p> Signup and view all the answers

What is a key factor in determining creditor meeting conduct as per court requirements?

<p>Disclosure of all material information to the court (B)</p> Signup and view all the answers

Which of the following statements correctly describes secured creditors?

<p>They should be placed in a different class from unsecured creditors. (C)</p> Signup and view all the answers

What defines the requirements for a scheme to be considered valid under the cross-class clampdown mechanism?

<p>Approval from a non-minority class must exist (C)</p> Signup and view all the answers

If different classes of creditors exist and the required majority is not satisfied, what is the implication?

<p>The scheme can still proceed under certain conditions (D)</p> Signup and view all the answers

In the context of creditor classification, what is a characteristic of preferential claims?

<p>They often have full payment guarantees from the debtor. (B)</p> Signup and view all the answers

What role do proxies play during the voting process of a proposed scheme?

<p>Creditors can use proxies to vote on their behalf. (C)</p> Signup and view all the answers

Flashcards

Scheme of Arrangement

A legal process allowing a company to restructure its debt or reorganize its affairs with creditors.

JM vs SOA

Comparing other financial reorganization methods to a Scheme of Arrangement.

Requirements for SOA (Companies Act s210)

Specific conditions that must be met for a Scheme of Arrangement to be considered under the Companies Act.

Who can apply for a Scheme

A company or its creditors can propose an SOA under certain prescribed cases and conditions.

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Interim Moratorium (IRDA)

A temporary halt to creditor actions during the scheme development.

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Court Leave to convene Scheme Meeting

Requesting permission from the court to organize a meeting of creditors to discuss and vote on the scheme.

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Creditor Classification

Categorizing creditors into groups to ensure fair voting and consideration during scheme process.

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Voting Threshold for Scheme

The required minimum level of support needed from a majority of creditors present to approve a scheme.

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Court Consideration Factors

Standards used by court when deciding to approve the fairness and equity of the scheme for each creditor involved.

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Dissimilarity Principle

Scheme must be fair and equitable to all dissenting classes of creditors.

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What is a Scheme of Arrangement?

A legal process where a company can restructure its debts or reorganize its business with creditors' approval. This helps a company avoid liquidation or bankruptcy.

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Key legislation for Schemes of Arrangement

The Insolvency, Dissolution and Winding-Up Act (IRADA) Sections 63-72, and the Companies Act Sections 210-211.

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Who can initiate a Scheme of Arrangement?

Generally, the debtor company initiates the process. In Singapore, a Singapore-incorporated company can start the scheme. Foreign companies may also be eligible under specific criteria.

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Interim Moratorium

A temporary halt ordered by the court, preventing creditors from taking legal or enforcement action against the company during the scheme proposal.

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What is the purpose of an Interim Moratorium?

It gives the company time to negotiate a scheme with creditors, and it prevents creditors from taking actions that could negatively affect the scheme negotiations.

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Court Leave to convene Meeting

The company must apply to the court for permission to hold a meeting with creditors to discuss and vote on the proposed scheme.

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Cross-Class Cramdown

If a majority of creditors in a class don't vote in favor of the scheme, the court can still approve it if it finds the scheme is fair to that dissenting class.

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What is the core requirement for a Scheme of Arrangement?

The proposed scheme must have a substantial connection to Singapore.

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What is the initial step in a Scheme of Arrangement process?

A company seeks an in-train moratorium to gain protection from creditors and legal actions while developing a scheme.

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How long does the initial moratorium last?

The initial moratorium lasts for 30 days and can be extended for several months.

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What are the requirements for an interim moratorium?

The company must provide evidence of creditor support and a detailed description of the proposed scheme.

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What does the moratorium restrict?

The moratorium prevents creditors from taking legal action against the company.

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Do contractual set-off rights affect the moratorium?

Generally, contractual set-off rights of creditors are not affected by the moratorium.

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What is the next key step after the moratorium?

The company applies to court for leave to convene a meeting of creditors to vote on the scheme.

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What is the voting threshold for scheme approval?

The scheme needs majority approval from each class of creditors representing three-fourths in value present and voting.

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What principle is applied to the scheme approval?

The scheme must be fair and equitable to all dissenting classes of creditors.

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Where can we find more information about the scheme process?

Refer to the relevant sections of the IRDA and related regulations.

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Court Approval for Scheme

After a company meets the requirements, it needs to get approval from the court for its proposed scheme of arrangement.

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Scheme Effective Date

The scheme becomes legally binding when the court's order is registered with the Registrar of Companies.

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Ex Parte Application

An application made to the court by the company seeking permission to hold a creditors' meeting to discuss the scheme.

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Court's Role in Meeting

The court decides whether a creditors' meeting should be held and how it should be run, but doesn't judge the scheme's fairness at this stage.

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TT International Principle

A key decision stating that the court only approves a creditors' meeting, not the scheme's fairness, at the initial stage.

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Disclosure in Scheme Proposal

The company must provide enough information to allow creditors to make informed decisions about the scheme.

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Court Refusal to Grant Leave

The court can deny permission for a meeting if it believes there's no realistic chance of the scheme being approved.

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Notice of Meeting & Explanatory Statement

These documents provide information about the scheme and are sent to creditors for them to understand and vote on it.

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Explanatory Statement Content

This document must include important details about the scheme, any conflicts of interest, and enough information for creditors to make informed decisions.

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Creditor Classification for Voting

Creditors are grouped based on the type of debt they hold to ensure fair voting and representation during the scheme approval process.

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What are dissenting creditors?

Creditors who oppose the proposed scheme of arrangement, often because they believe it doesn't offer them a fair deal compared to others.

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What is the 'cramdown' effect?

A legal concept allowing the court to approve a scheme, even if certain creditor classes oppose it, if the scheme is deemed fair overall.

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How can third parties be impacted by a scheme?

A scheme can release or compromise the obligations of third parties who are liable for the company's debts, including Garing Tors.

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What are some examples when a scheme may be rejected?

Lack of transparency, incomplete disclosure, and unfairness to certain creditor classes can lead to court rejection of a scheme.

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What are some ways a scheme can end?

Schemes can terminate based on their terms, completion of the plan, time limits, defaults, or through a vote by creditors.

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What is the dissimilarity principle?

The dissimilarity principle states that creditors should be divided into separate classes if their rights are so different that they cannot reasonably discuss a common interest together.

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How are creditors classified?

Creditors are classified based on the dissimilarity principle, which means they are divided into separate classes if their rights and interests are different enough that they can't agree on a common goal.

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Secured vs. Unsecured Creditors

Secured creditors have a claim on specific assets of a company, while unsecured creditors do not. They are typically placed in different classes because their rights are different.

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Priority Claims

Creditors with priority claims, like those for taxes or employee wages, are often placed in a separate class because they have a higher priority for payment.

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Subordinated Claims

Creditors with subordinated claims are paid last in the event of a company's liquidation. They are often placed in a separate class due to this different treatment.

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Meeting of Creditors

A meeting held to discuss a proposal for restructuring a company's debt or reorganizing its affairs with creditors.

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Voting Threshold

The percentage of creditors in each class that must agree to a proposed scheme for it to be approved.

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Requirements for Cross-Class Cramdown

At least one class of creditors must approve the scheme, and the court must determine that it is fair and equitable to those who didn't approve.

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Fairness and Equity in Cross-Class Cramdown

The court needs to ensure that the scheme is fair and equitable for all creditors, even if they don't unanimously approve it.

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Study Notes

Schemes of Arrangement

  • Schemes of arrangement can vary the rights of company creditors/members.
  • They are not limited to insolvency situations; can be used in mergers/consolidations.
  • Judicial management involves displacement of directors, while schemes don't.
  • Judicial managers replace the board of directors in judicial management; directors remain in control in schemes.
  • Schemes aim to resolve diverging company/creditor interests.
  • Companies often are reluctant to liquidate, preferring to maintain operations.
  • Creditors may compromise debts to avoid liquidation.

Objective and Purpose of Scheme

  • Financial deterioration often creates diverging interests between companies and creditors.
  • Companies are reluctant to liquidate, hoping for solvency.
  • Creditors might compromise debts rather than force liquidation.
  • Deferment or reduced payments are common alternatives.
  • Coordination problems can arise from widely dispersed creditors.
  • Motivation problems can arise from extracting value during negotiations.

Requirements for SOA s210 of the Companies Act

  • Court has jurisdiction over schemes for Singapore-incorporated companies.
  • Section 210(11) CA & s 63(3) IRDA extend jurisdiction to companies liable for winding up under IRDA.
  • Moratorium requirements must be met(creditor support,brief description of the scheme).

Interim Moratorium

  • Automatic interim moratorium triggered by company application.
  • Lasts for 30 days, or until court decision on application.
  • It impacts legal actions against the company during this time.

Conditions

  • Court can only grant a scheme if a company does not face winding up.
  • A company must undertake to make a SOA application
  • A company cannot invoke the Court for a stay of legal proceedings.

Convening the Scheme Meeting

  • Court directs convening creditors' meetings, which include an explanatory statement about the scheme.
  • Before the meeting the Chairperson is appointed to adjudicate on creditor's debt claims, determining voting rights.
  • The company must classify creditors to determine whether separate meetings are needed.

Voting on the Proposed Scheme

  • Certain thresholds of creditor support are required for SOA approval.
  • Both a majority by headcount of creditors and three-fourths of value of voting creditors are necessary.
  • If a company is under judicial management, different rules concerning majority approval might apply.
  • Companies and creditors should comply with the rules of court.

Factors Considered by the Court

  • Court must be satisfied of three things: statutory compliance, fair representation of creditor classes, and a scheme a reasonable businessperson would accept.
  • Fairness and reasonableness are crucial factors.

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Related Documents

Schemes of Arrangement PDF
Schemes of Arrangement (Singapore) PDF

Description

This quiz covers the fundamental concepts of schemes of arrangement, particularly in the context of how they impact company creditors and members. It clarifies the distinctions between judicial management and schemes, highlighting the motivations behind such arrangements. Explore the objectives and challenges involved when companies and creditors seek to avoid liquidation.

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