© 2015 Jay M. Borowsky, Esq.
A Scheme (or Plan) of Arrangement has similarities to a bankruptcy process as it is designed so a company can resolve by a process its outstanding liabilities; but unlike bankruptcy, the company itself may still be solvent and utilize this process. The company can make “arrangements” or compromises with its creditors by particular class such that if a majority of creditors representing more than 75% of the outstanding liabilities approve the scheme, it binds all creditors whether or not they voted for it. In the UK, Part 26 of the Companies Act 2006 governs schemes of arrangement.
While schemes have been utilized for decades in the UK, it has only been in the last dozen years that insurance and reinsurance companies discovered the advantages of this closure process. Schemes for insurers and reinsurers have gained in popularity in the UK and to lesser extent in Bermuda. No state in the US except for Rhode Island has a comparable law and to date only one reinsurance scheme has been approved in this state.
A key advantage to schemes of arrangement is the speed with which a company can close
down. Unlike traditional run-