First, the Scheme of Arrangement — Section 366 of CA 2016. SOA is a powerful, flexible and court-supervised mechanism for debt restructuring, reconstruction and amalgamation of companies, including any transfer of property or liabilities between them.
We would advise companies to apply for a court-granted restraining order under Section 368 of CA 2016 to restrict any legal action by creditors or other parties against the company. It also gives the company some breathing space to negotiate a compromise with the creditors. The JM order will be in force for six months, and it can be extended by another six months subject to the court’s approval. The judicial manager will use this six months to work out a proposal to rescue the company with the creditors and obtain their approval. Once the rescue plan is approved, all the creditors are bound by it.
When the necessary documents are ready, the company, with the assistance of lawyers, will then file the same to the court. Once the documents are filed, a 28-day automatic moratorium kicks in to protect the subject company. The nominee must convene a creditors’ meeting and obtain approval of the proposed CVA from 75 per cent of the total value of creditors. Once obtained, the proposed CVA will be binding on all creditors.