scheme of arrangement

1. An agreement between a debtor and his creditors to arrange the debtor’s affairs to satisfy the creditors. The debtor usually agrees to such an arrangement in order to avoid *bankruptcy. If the arrangement is agreed when no *bankruptcy order has been made, it is governed primarily by the ordinary law of contract. However, if it is for the benefit of the debtor’s creditors generally, or if the debtor is insolvent and it is for the benefit of at least three of his creditors, it is a *deed of arrangement and subject to statutory control unless it is a voluntary arrangement. An arrangement agreed after a bankruptcy order has been made is governed by the statutory provisions relating to bankruptcy (see *voluntary arrangement).
2. An agreement between a company and its creditors or members when the company is in financial difficulties or to effect a *takeover. It must be approved by at least 50% (representing 75% in value) of those creditors or members at separate meetings and sanctioned by the court. All creditors or members involved in the scheme are bound by it, although the court can make special provision for those who dissent (Companies Act 1985). Agreements with company creditors can now be more conveniently concluded by *voluntary arrangement under the Insolvency Act 1986.