Part XVI of the Companies Act 1997 is the Act’s most flexible restructuring tool — and its most tightly rationed.
Section 249 — the definitions
“Arrangement” includes a reorganisation of the share capital of a company by the consolidation of shares of different classes, or by the division of shares into shares of different classes, or by both.
“Company” means a company within the meaning of section 2, or an overseas company registered on the register.
“Creditor” includes a person who in a liquidation would be entitled to claim under section 351, and a secured creditor.
“Includes” means the definition of arrangement is not exhaustive. Share capital reorganisation is the named example; the concept extends to any scheme reorganising rights between a company and its members or creditors.
Section 250(1) — the approval power
Notwithstanding the provisions of this Act or the constitution of a company, the Court may, on the application of a company or any shareholder or creditor, order that an arrangement or amalgamation or compromise shall be binding on the company and on such other persons or classes of persons as the Court may specify — and any such order may be made on such terms and conditions as the Court thinks fit.
This is the widest override in the Act. A Part XVI order can do things the Act would otherwise forbid and the constitution would otherwise prevent — which is why section 252 restricts when it may be used.
Note who may apply: the company, any shareholder, or any creditor. And note whom the order may bind: such other persons or classes of persons as the Court may specify — not merely those who voted, and not merely creditors given notice, as under section 244(2).
Section 250(2) — the preliminary orders
(a) that notice of the application, with such information as the Court thinks fit, be given in such form and manner and to such persons or classes as it specifies;
(b) the holding of a meeting or meetings of shareholders, or any class of shareholders or creditors, to consider and if thought fit approve the scheme in such manner as the Court may specify — and for that purpose the Court may determine the shareholders or creditors that constitute a class;
(c) that a report on the proposed scheme be prepared for the Court by a person specified by the Court, and if the Court thinks fit be supplied to shareholders, any class of shareholders or creditors, or any other interested person;
(d) as to the payment of the costs of preparing the report;
(e) specifying the persons entitled to appear and be heard on the approval application.
The hardest question in any scheme is how to divide those affected into classes. Under Part XV the proponent decides at its own risk; if the classes are wrong, the compromise is exposed under section 246(3)(b) as a material irregularity.
Under section 250(2)(b) the Court determines the classes before the meetings are held. That removes the single largest risk in a complex restructuring, and is one of the main reasons for choosing Part XVI.
Paragraph (c) is the second: an independent report to the Court, which may also be given to those affected — the equivalent of the expert’s report familiar in scheme practice elsewhere.
Under section 250(3), an order has effect on and from the date specified in it. Under section 250(4), within one month the board shall ensure a certified copy is submitted to the Registrar — and under section 250(5), failure is an offence by every director, penalty under section 414(2).
Section 251 — the implementing orders
(a) the transfer or vesting of real or personal property, assets, rights, powers, interests, liabilities, contracts, and engagements;
(b) the issue of shares, securities, or policies of any kind;
(c) the continuation of legal proceedings;
(d) the liquidation of any company;
(e) the provisions to be made for persons who voted against the scheme at a meeting called under section 250(2)(b), or who appeared before the Court in opposition;
(f) such other matters as are necessary or desirable to give effect to it.
The Court may vest property, contracts and liabilities without conveyances, assignments or novations. That achieves for any scheme what section 238 achieves automatically for an amalgamation — but with the flexibility to move only some assets, to split a business, or to restructure across several companies at once.
Paragraph (e) is the dissenters’ protection. Where Part XIV gives an objecting shareholder a statutory buy-out and Part XV gives an objecting creditor the section 246(3) challenge, Part XVI leaves it to the Court to make whatever provision it thinks appropriate for those who voted against or appeared in opposition.
Section 251(2) and (3) repeat the filing obligation: a certified copy within one month, on pain of an offence by every director.
Section 252 — Part XVI is a last resort
The Court shall not approve an arrangement, amalgamation or compromise that could be effected under Part XIV or XV, unless the Court is satisfied that it is not reasonably practicable to effect it under those Parts.
Parts XIV and XV contain deliberate protections: solvency and best-interests certificates, a month’s notice to shareholders and secured creditors, public notice, special resolutions of each company and each interest group, buy-out rights for dissenting shareholders, and the section 246(3) creditor challenge.
If Part XVI were freely available, a company could bypass all of that by going straight to Court. Section 252 prevents it: the applicant must show that the ordinary routes are not reasonably practicable.
| Situation | Why Parts XIV and XV do not work |
|---|---|
| A share capital reorganisation consolidating or dividing classes | Not an amalgamation, and not a compromise with creditors — expressly within the s 249 definition of “arrangement” |
| A scheme splitting a business between companies | Part XIV merges companies; it cannot divide one |
| A restructuring involving several companies and several classes at once | Running parallel Part XIV and XV processes is impracticable and risks inconsistent outcomes |
| Class composition genuinely uncertain | Only s 250(2)(b) lets the Court determine the classes in advance |
| An overseas company registered here | “Company” in s 249 expressly includes one |
| The scheme needs property vested or proceedings continued by order | Only s 251 provides those powers |
| Approval is needed from persons who are neither shareholders nor creditors | Only s 250(1) can bind “such other persons or classes as the Court may specify” |
Section 253 — the liquidation question
The provisions of section 247 apply, with such modifications as may be necessary, in relation to any compromise approved under section 250.
So the Court may determine, either when approving the scheme or afterwards, the extent to which it continues in effect and binds the liquidator if the company is put into liquidation. As with a Part XV compromise, that question is best settled when the scheme is approved rather than left to be argued in the liquidation.
Running a Part XVI application
- Address section 252 first. Explain why Part XIV or Part XV is not reasonably practicable. Without that, the Court cannot approve.
- Seek the preliminary orders under section 250(2) — notice, class determination, an independent report, and who may be heard.
- Propose the class division and support it with evidence about the rights and interests of each group.
- Deal with dissenters in the proposal itself, so the Court can make provision under section 251(1)(e).
- Ask for the implementing orders under section 251 — vesting, share issues, continuation of proceedings — in the approving order where possible.
- Consider section 253 and seek a determination on the scheme’s effect in any later liquidation.
- File the certified copy within one month — twice if there are separate approving and implementing orders. The offence falls on every director.
Sources
- Companies Act 1997 — ss 2, 88, 91–96, 98, 232–240, 241–248, 249–253, 351, 414; Part XX
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.