What is the purpose of a Scheme of Arrangement?

A Scheme of Arrangement primarily serves the purpose of restructuring a company. This legal process allows a company to propose an arrangement to its creditors and shareholders for reorganizing its financial obligations and operations. The arrangement must be approved by the necessary stakeholders and sanctioned by the court, providing a formal mechanism to address financial difficulties without necessarily leading to insolvency or liquidation.

Through a Scheme of Arrangement, a company can achieve various restructuring objectives, such as altering the terms of debt repayment, reorganizing its capital structure, or facilitating mergers and acquisitions. It enables the company to stabilize its financial position by reaching a consensual agreement with creditors, thereby potentially avoiding bankruptcy.

While capital raising and debt repayment might be indirect results of a successful restructuring process, they are not the primary objectives of a Scheme of Arrangement. Similarly, liquidating assets is usually considered a last resort option when a company cannot sustain its operations, which distinguishes it from the proactive and negotiated nature of a Scheme of Arrangement aimed at restructuring.