Scheme of arrangement

A restructuring under sections 230 to 232 of the Companies Act, approved by the National Company Law Tribunal (by the High Court before December 2016), used for mergers, demergers, capital reductions and the transfer of businesses between group entities.

Each scheme document sets out the share exchange ratio, the appointed date from which the transaction takes effect for accounting, and the treatment of every class of shareholder and creditor.

Schemes deserve careful reading in group structures. An exchange ratio determines how value moves between two sets of shareholders, and where both entities are controlled by the same promoter, a valuer appointed by people with an interest in the answer sets it. That alone is a reason to read slowly.

Independent valuation reports are filed with the scheme. Read the assumptions, not the conclusion.