Distress & Turnarounds

Schemes of Arrangement versus Chapter 11

Two restructuring technologies, built on opposite premises: one compromises a few classes of financial debt surgically, the other takes control of an entire business. Learn which problems each actually solves.

  • Expert
  • 12 min total
  • 13 chapters

What decision this helps you make: Which process to run for a given capital structure — an English scheme or restructuring plan, a chapter 11, a European equivalent, or a combination — and what each cannot do.

What this topic is

An English scheme of arrangement under Part 26 of the Companies Act 2006 is a court-sanctioned compromise between a company and a class of its creditors or members, approved by a majority in number representing 75% in value of each class present and voting. The Part 26A restructuring plan, added in 2020, uses the same architecture but adds cross-class cramdown and drops the numerosity requirement. Chapter 11 is a collective insolvency proceeding that brings the whole business into a court-supervised process with an automatic stay, contract rejection, asset sales free and clear, priming finance, and avoidance powers.

Why it matters

The choice is not about which jurisdiction is friendlier. It is about what you need to change. A company whose only problem is a bond maturity does not need chapter 11's machinery and should not pay for it. A company that needs to reject two hundred leases, sell a division free and clear, and raise priming money cannot do that in a scheme at all. Choosing the wrong process costs months and can leave the actual problem untouched.

Who should learn it

Restructuring lawyers and financial advisers on cross-border mandates, credit investors assessing what a borrower can and cannot do to them, treasury teams at multinational groups, and anyone modelling recoveries under alternative processes.

What you will understand

  • The mechanics of a Part 26 scheme and a Part 26A restructuring plan, including the class-composition question
  • The two statutory conditions for English cross-class cramdown, and what Adler added at the sanction stage
  • What chapter 11 offers that no scheme can, and what that machinery costs
  • How jurisdictional reach, the Gibbs rule, and recognition drive the choice in practice

Prerequisites

Common misconception

"A scheme is just a cheaper chapter 11." It is a different instrument for a different problem. A scheme has no moratorium — creditors outside the compromised classes can sue and enforce throughout. It cannot reject contracts or leases. It cannot sell assets free and clear of liens. It cannot raise financing that primes existing security. It cannot touch trade creditors you have not put in a class. What it does is compromise identified financial claims quickly, cheaply, and with far less disruption than a full insolvency proceeding — and for a company whose only problem is its balance sheet, that is precisely the right tool.