VC & PE Glossary
What Is Scheme of Arrangement?
Updated
Definition
A scheme of arrangement is a court-approved process — common in the UK and other jurisdictions — to bind all shareholders to a restructuring, merger, or takeover approved by a vote and judicial sanction.
Useful for: Founders, Investors
Scheme of arrangement is a court-supervised corporate procedure to implement mergers, restructurings, or takeovers that bind all shareholders once approved.
How it works
Company proposes a scheme (e.g., acquire all shares for cash or shares). Shareholders vote in classes; typically 75% of votes cast and 50% of number thresholds apply in UK practice — exact tests vary by jurisdiction.
Court hearing sanctions the scheme if procedural requirements met; dissenters are compelled to accept consideration — unlike voluntary tender where minorities may remain.
Used in friendly takeovers, debt restructurings, and spin-offs. Contrasts with U.S. statutory mergers or tender offers. Cross-border deals involving UK HoldCos frequently use schemes for clean 100% acquisition.
Timeline includes circular mailing, vote, court dates — often longer than private U.S. sign-and-close but higher certainty against holdouts.
Why it matters
- Founders: If cap table includes UK entity, exit path may be scheme-driven — plan communications to employee shareholders early.
- Investors: Vote mechanics and court risk are deal conditions; break fees may mirror U.S. reverse break-up fee concepts.
Common mistake
Assuming U.S. merger docs translate directly to UK schemes — shareholder class treatment and court timetable differ materially.
Related ideas
See also restructuring, change of control, drag along, and locked box (UK).
Related terms
- Change of Control — Change of control is a transaction or event that shifts majority voting power or ownership of a company — such as a merger, acquisition, or sale of most assets — often triggering contractual rights for investors and employees.
- Restructuring — Restructuring is a deliberate change to a company's capital structure, operations, or ownership — often to reduce debt, reset valuations, or survive a liquidity crunch.
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Common questions
Short answers for founders, LPs, and operators