The use of creditors’ schemes of arrangement has significantly trailed behind the use of Deeds of Company Arrangement.
This is recognised by a Consultation Paper released on 2 August 2021 by the Treasury Department, titled Helping Companies Restructure by Improving Schemes of Arrangement.
The Consultation Paper states:
ASIC data shows that the number of scheme administrators appointed in recent years remain low: two in 2019-20, one in 2018-19, and three in 2017-18. For comparison a total of 10,063 insolvency processes were entered into in 2019-20.
Creditors’ schemes of arrangement require at least two court room outings; one for Court approval to convene a meeting of creditors to vote on the proposed scheme, and another for the Court to approve scheme, making it binding, after creditors have voted to approve the scheme.
A majority of creditors, or a majority in each class of affected creditors, must vote to approve the scheme whose debts or claims against the company, in the aggregate, amount to at least 75% of the total amount of the debts and claims of the creditors voting.
These procedures are set out in section 411 of the Corporations Act 2001 (Cth).
One can see the utility of creditors’ schemes of arrangement when combined with members’ schemes of arrangement to effect a corporate restructure as in the recent case of In the matters of Boart Longyear Limited  NSWSC 982. Otherwise, their attractiveness is limited.
The Consultation Paper identifies several areas of potential reform, including to potentially introduce “cross-class cram down” mechanisms to remove the need for all classes of creditors to vote in favour of a scheme in order for it to be approved and to also introduce an automatic moratorium on making claims against the company once a scheme is in effect.
Submissions to the Department’s inquiry closed on 10 September 2021. Watch this space.