Law Firms: Be Strategic In Your COVID-19 Guidance... [GUIDANCE] On COVID-19 and Business Continuity Plans. Therefore a company is likely to prefer a route that does not require such a registration. accredited investors or offers made in offshore transactions. Among other provisions, Rule 10b-5 provides that it is unlawful in connection with the sale of any security "to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading". In addition, the securities will be subject to blue sky laws. A scheme of arrangement is a statutory mechanism which is an alternative to a contractual offer. In addition, the securities will be subject to blue sky laws. the issuer knows or has reason to know, before the public announcement of the offer, that the level of US ownership exceeds 10 percent of such securities. To ensure that the offer of securities as part of the scheme does not constitute a public offering, it is therefore customary that the offer in the US of scheme securities is made only to institutional accredited investors. Proposals of the Scheme Administrator, 2 April 2013 Letter to Scheme Creditors dated 13 November 2012 regarding the triggering of the Scheme of Arrangement Proposal in relation to a Scheme of Arrangement sanctioned by the court on 19 January 1994 Letter to members, 9 December 1993 It is not an insolvency process and is utilised under the Companies Act 2006 rather than insolvency legislation, but it must still be sanctioned by court process. As such, adequate time should be allotted for the offer to be held open. A compromise or arrangement between a company and its members or creditors (or any class of them) under Part 26 of the Companies Act 2006. Schemes of arrangement are an important and flexible mechanism, which can be used to reorganise a company's capital. If a company is offering securities, it must comply with both federal regulations and state securities laws and regulations in the states where securities are offered and sold (typically, the states where offerees and investors are based). None of the exemptions discussed here pre-empt blue sky laws so the issuer will need to conduct a blue sky survey to determine the residency of the investors and to identify applicable state exemptions. The principal disadvantage of this exemption is that the information sent to investors must be submitted to (but not registered with) the SEC and the securities issued in reliance on Rule 802 will be "restricted securities" and may not be freely resold in the US without registration or exemption from registration. As such, care should be taken that the explanatory statement contains sufficient detail, in an accurate manner, to allow scheme creditors to make an informed decision on the securities offered in the scheme proposals. This publication is protected by copyright. A scheme of arrangement can be used to effect a solvent reorganisation of a company or group structure, including by merger or demerger , as well as to effect insolvent restructurings such as by a debt for equity swap or by a wide variety of other debt-reduction strategies. A scheme of arrangement was sanctioned by the High Court of Justice of England and Wales. In order to comply with Section 4(a)(2), an issuer may only offer and sell securities into the US to persons the issuer reasonably believes are accredited investors as defined in  Rule 501 under the Securities Act ("accredited investors"). Takeovers: scheme of arrangement vs contractual offers. If the registration exemptions above cannot be used for particular investors who are not eligible under one of the above exemptions, mechanisms to avoid unfairness to holders have been created, such as placing the scheme securities with a trustee for a holding period during which the ineligible holder may designate an eligible recipient to receive the restructured securities, and to whom the holder will have in effect sold their entitlement. By way of background, a scheme of arrangement is a flexible tool for court-approved corporate reorganizations found in the law of a variety of jurisdictions (including the UK, India, Australia and South Africa). Preparing a US registered offering is a significant undertaking and, following a registered offering, a SEC registrant is subject to, among other obligations, SEC disclosure requirements and increased levels of potential securities law liability. A scheme of arrangement is often preferable to a judicial management in various situations. The principal disadvantage of relying on Section 4(a)(2) and the relevant safe harbours is that the utility of this exemption depends on the composition of the creditors subject to the scheme of arrangement, i.e. UK law permits schemes of arrangements to include third-party releases. Over 98 percent (but not 100 percent) of the class of creditors approved the scheme. Preparing a US registered offering is a significant undertaking and, following a registered offering, a SEC registrant is subject to, among other obligations, SEC disclosure requirements and increased levels of potential securities law liability. A Scheme of Arrangement helps a company in the restructure of its debt, and aids recovery from financial distress. This publication is provided for your convenience and does not constitute legal advice. Offers outside the US are typically made in an "offshore transaction" without "directed selling efforts" in order to comply with the safe harbour of Regulation S under the Securities Act. While the SEC regulates and enforces the federal securities laws, each state has its own securities regulator who enforces what are known as "blue sky" laws. By continuing to browse this website you accept the use of cookies. It is not actually an insolvency procedure and can be usedby both solvent and insolvent companies to agree any issue or matter with itscreditors and/or members. Judge decides whether an insurance company proposing a scheme of arrangement should convene a single class meeting of creditors. An offer to all, or a substantial majority of, security holders which results in an offer for, or exchange of, existing securities, may potentially constitute a tender offer under US securities laws. Section 12(g) of the Exchange Act requires that a foreign private issuer register any "class" of "equity securities" with the SEC if: (i) it has total assets exceeding $10 million and (ii) such class of equity securities is "held of record" by 2,000 or more persons (US or non-US) globally or 500 or more non-Accredited Investors (US or non-US) globally. As detailed above, each exemption has different requirements, advantages and disadvantages, depending on the specific circumstances of the proposed securities offering and the companies have the ability to choose the most suitable combination. Like the scheme, the restructuring plan sits in the Companies Act 2006 rather than the Insolvency Act 1986. In addition, the securities will be subject to blue sky laws. In or… The following US securities laws may be applicable in the scheme of arrangement context, and it is important to ensure that the relevant offering components are built into a transaction timeline. Competition 23 5. Click here to read more about how we use cookies. © 2020 White & Case LLP, UK Schemes of Arrangement and US Securities Considerations. the issuer knows or has reason to know, before the public announcement of the offer, that the level of US ownership exceeds 10 percent of such securities. Although securities offered and sold in private offering pursuant to Section 4(a)(2) do not pre-empt blue sky laws, as long as the US sales are made only to accredited investors in accordance with Section 4(a)(2) this is not expected to raise "blue sky laws" concerns. Although securities offered and sold in private offering pursuant to Section 4(a)(2) do not pre-empt blue sky laws, as long as the US sales are made only to accredited investors in accordance with Section 4(a)(2) this is not expected to raise "blue sky laws" concerns. Scheme of Arrangement: An English Law Cram Down Procedure. Section 304 of the Trust Indenture Act provides an exemption for debt securities issued pursuant to the registration exemption of Section 4(a)(2) under the Securities Act. Rule 14e-1 under the Exchange Act makes it unlawful for any person who makes a tender offer to: (i) hold the offer open for less than 20 business days; (ii) make certain material changes to the offer without extending the offer period for an additional 10 business days; (iii) fail to pay the consideration offered or return the securities deposited; or (iv) extend the length of a tender offer without sending a notice. resale limitations, unless the recipient is an "affiliate" of the issuer (or was one within the prior 90 days). The SEC, in no-action letters and in guidance on this topic, has clearly stated its view that the term "any court" in Section 3(a)(10) may include a foreign court (such as the English High Court considering a scheme of arrangement), provided all relevant requirements that apply to exchanges as approved by US courts, as set out below, are met: Schemes can typically be structured to meet these requirements. Neither Sections 4(a)(2), 3(a)(10) nor Rule 802 act as an exclusive exemption; an issuer making an offer or sale of securities in reliance on one of these exemptions or safe harbours may also rely on any other applicable exemption from the registration requirements of the Securities Act. In addition, the securities offered will be "restricted securities" and may not be freely resold in the US without registration thereof or an exemption from registration. In structuring a UK scheme of arrangement that involves the restructuring of existing securities and/or the offer of new securities, due consideration must be given to the relevant US securities laws and registration exemptions thereunder, since security holders who are US persons or resident in the United States may be involved or new securities offered as part of the scheme of arrangement … resale limitations, unless the recipient is an "affiliate" of the issuer (or was one within the prior 90 days). The principal disadvantage of relying on Section 4(a)(2) and the relevant safe harbours is that the utility of this exemption depends on the composition of the creditors subject to the scheme of arrangement, i.e. This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. Bidding companies are much more likely to gain the support of target company shareholders if the board recommends it, which tends to make the process quicker and subdue any debate. The principal advantage of relying on Section 4(a)(2) and the relevant safe harbours is that debt securities issued under this exemption are exempt from the Trust Indenture Act (See "Other Considerations—Trust Indenture Act" below). Securities issued in reliance on Section 3(a)(10) are generally not considered "restricted securities" and are not subject to US. Section 5 of the Securities Act requires offers and sales of securities in the US to be registered with the US Securities and Exchange Commission (SEC), unless an exemption is available. A restructuring where not all creditors agree to the number of holders company proposing a scheme arrangement... Which is governed by the Companies Act 2006 insurance company proposing a of! 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