A scheme of arrangement is a court-supervised compromise between a company and its creditors or shareholders, widely used in English-law jurisdictions such as the UK, Cayman Islands and Singapore. The United States does not have a statutory instrument called a "scheme of arrangement," but its insolvency and restructuring framework offers functionally equivalent tools - most notably Chapter 11 of the US Bankruptcy Code. For cross-border transactions, foreign schemes can also be recognised in the USA through Chapter 15. This guide explains the US restructuring landscape, how it compares to a classic scheme, and what creditors, debtors and foreign companies need to know before engaging with the US system.
A scheme of arrangement is a statutory procedure originating in English company law. It allows a company to bind dissenting creditors or shareholders to a restructuring plan, provided a court approves the scheme and the required majorities vote in favour. The threshold is typically a majority in number and 75 percent in value within each class.
The USA never adopted this English-law construct. Instead, Congress developed the Bankruptcy Code, codified at Title 11 of the United States Code, which governs corporate restructuring through a distinct set of chapters. The most relevant for restructuring purposes are Chapter 11 (reorganisation), Chapter 7 (liquidation) and Chapter 15 (cross-border insolvency). Each serves a different purpose, and together they cover the ground that a scheme of arrangement occupies in common-law jurisdictions.
The practical consequence for international businesses is significant. A company incorporated in the Cayman Islands or the British Virgin Islands may use a scheme of arrangement in its home jurisdiction and then seek recognition of that scheme in the USA under Chapter 15. Alternatively, a company with substantial US operations may file directly under Chapter 11 to restructure its US liabilities. Understanding which route applies - and why - is the starting point for any cross-border restructuring strategy.
Chapter 11 of the Bankruptcy Code is the primary US mechanism for corporate reorganisation. It is the closest functional equivalent to a scheme of arrangement in USA practice. A debtor files a voluntary petition in a federal bankruptcy court, which immediately triggers an automatic stay - a statutory injunction halting most creditor actions against the debtor';s assets.
Under Chapter 11, the debtor typically operates as a "debtor in possession," retaining control of its business while formulating a plan of reorganisation. The plan must be voted on by classes of creditors and equity holders. A class accepts the plan if at least two-thirds in amount and more than one-half in number of voting claims approve it. These thresholds differ from the English scheme majority, which requires a majority in number and 75 percent in value.
A critical feature of Chapter 11 is the "cram-down" mechanism under Section 1129(b) of the Bankruptcy Code. If one or more classes reject the plan, the court can still confirm it - provided the plan does not discriminate unfairly and is fair and equitable with respect to each rejecting class. This cram-down power is functionally analogous to the court';s ability to sanction a scheme over minority objections, though the legal tests differ substantially.
In practice, Chapter 11 is more expensive and procedurally intensive than a typical scheme. Court supervision is continuous, professional fees are substantial, and the process can last from a few months to several years depending on complexity. However, Chapter 11 also offers broader debtor protections, including the ability to reject burdensome contracts and leases under Section 365 of the Bankruptcy Code.
For smaller debtors, Congress introduced Subchapter V of Chapter 11 through the Small Business Reorganisation Act. Subchapter V streamlines the reorganisation process for qualifying small businesses by reducing costs, eliminating the requirement to form a creditors'; committee in most cases, and allowing the debtor to retain equity without paying unsecured creditors in full - provided the plan is funded from future earnings.
Subchapter V is relevant to the scheme-of-arrangement comparison because it narrows the procedural gap between the US and English-law approaches. The process is faster, typically concluding within three to five months, and the debtor has exclusive rights to file a plan. A trustee is appointed to facilitate a consensual plan, but the debtor remains in possession of its assets.
Eligibility for Subchapter V depends on the debtor';s aggregate non-contingent, liquidated debts not exceeding a statutory threshold, which has been adjusted periodically by Congress. Businesses that exceed this threshold must use standard Chapter 11. Foreign founders and investors should verify current eligibility limits with US counsel before assuming Subchapter V is available.
A common mistake among international clients is assuming that Subchapter V is a simplified version of a scheme of arrangement. It is not. The voting mechanics, class structure and confirmation standards differ materially. A non-obvious requirement is that the debtor must be engaged in commercial or business activities at the time of filing - purely passive holding companies may not qualify.
Chapter 15 of the Bankruptcy Code implements the UNCITRAL Model Law on Cross-Border Insolvency. It provides a mechanism for foreign insolvency representatives - including administrators, liquidators and scheme supervisors - to obtain recognition of foreign proceedings in the USA. This is the primary route by which a foreign scheme of arrangement can be given effect against US-based creditors or assets.
Recognition under Chapter 15 requires a foreign representative to file a petition in a US bankruptcy court. The court determines whether the foreign proceeding is a "foreign main proceeding" (where the debtor';s centre of main interests, or COMI, is located) or a "foreign non-main proceeding" (where the debtor has an establishment). Recognition as a foreign main proceeding triggers automatic relief similar to the Chapter 11 automatic stay, protecting the debtor';s US assets from creditor action.
The practical significance of Chapter 15 for scheme practitioners is substantial. A Cayman Islands scheme of arrangement, for example, can be recognised in the USA, allowing the scheme supervisor to enforce the scheme';s terms against US creditors and to access US assets. Courts have generally been willing to grant recognition where the foreign proceeding meets the statutory criteria under Section 1517 of the Bankruptcy Code.
However, US courts retain discretion to refuse recognition or limit its effects where recognition would be "manifestly contrary to the public policy of the United States" under Section 1506. In practice, this exception is applied narrowly, but it creates a residual risk for foreign scheme proponents. A non-obvious requirement is that the foreign representative must demonstrate the debtor';s COMI, which can be contested by US creditors seeking to challenge recognition.
If your business is navigating a cross-border restructuring involving US assets or creditors, contact info@vlolawfirm.com. We can help structure the setup correctly the first time.
One of the most efficient forms of US restructuring is the "prepackaged" Chapter 11 filing. In a prepack, the debtor negotiates and obtains creditor votes on a plan of reorganisation before filing for bankruptcy. The bankruptcy case is then used solely to confirm the pre-agreed plan, typically within 30 to 60 days of filing.
This approach closely mirrors the consensual scheme of arrangement in English-law practice, where the company negotiates terms with key creditors before launching the formal court process. The key difference is that US solicitation of votes must comply with the disclosure requirements of Section 1125 of the Bankruptcy Code, which requires a court-approved disclosure statement before votes are solicited - unless the solicitation occurred before the filing and complied with applicable non-bankruptcy law.
A pre-negotiated restructuring is a middle ground: the debtor reaches agreement in principle with major creditors before filing but does not formally solicit votes until after the petition. This allows more flexibility in negotiation while still achieving a faster-than-average Chapter 11 timeline of three to six months.
In practice, founders and boards considering a prepackaged or pre-negotiated restructuring should engage financial advisers and restructuring counsel at the earliest sign of financial distress. A common mistake is waiting until liquidity is exhausted before seeking advice, which eliminates the time needed to negotiate a pre-agreed plan and forces a contested Chapter 11 that is far more expensive and uncertain.
Scenario one: a US-incorporated operating company in financial distress. A Delaware corporation with significant US operations, US-based creditors and US employees will almost always restructure under Chapter 11. The automatic stay protects US assets immediately upon filing, and the cram-down mechanism allows the company to bind dissenting creditors. A foreign scheme is not available to a US-incorporated entity as a primary restructuring tool.
Scenario two: a Cayman Islands holding company with US subsidiary debt. A Cayman holding company that has issued bonds governed by New York law may choose to implement a scheme of arrangement in the Cayman Islands and then seek Chapter 15 recognition in the USA to bind US-based bondholders. This approach can be faster and less expensive than a full Chapter 11 filing, particularly if the US subsidiary';s operations are not themselves in distress. The key risk is that US bondholders may challenge COMI or argue that the Cayman scheme does not meet US public policy standards.
The choice between these routes depends on the debtor';s incorporation, the governing law of its debt instruments, the location of its assets and the composition of its creditor base. There is no universal answer, and the analysis must be conducted on a case-by-case basis with experienced cross-border restructuring counsel.
US restructuring proceedings are among the most expensive in the world. A standard Chapter 11 case for a mid-sized company typically involves professional fees running into the millions of dollars, covering restructuring counsel, financial advisers, investment bankers and claims agents. For smaller companies using Subchapter V, costs are materially lower, but still significant by international standards.
State and registration charges in a Chapter 11 case include the bankruptcy court filing fee, which varies by the size of the debtor';s assets and liabilities. US Trustee quarterly fees are payable throughout the case based on disbursements. These are statutory charges set by federal law and are not negotiable.
Professional fees are the dominant cost driver. Restructuring counsel at major US law firms bill at rates that can reach several hundred to over a thousand dollars per hour per attorney. Financial advisers typically charge monthly retainers plus success fees. In a prepackaged case, total professional fees may be substantially lower because the court process is compressed.
For a Chapter 15 recognition proceeding, costs are considerably lower than a full Chapter 11 - typically in the range of low to mid six figures in professional fees, depending on whether recognition is contested. An uncontested Chapter 15 petition can be resolved within a few weeks of filing.
Many underestimate the cost of the US Trustee oversight function, which requires regular reporting, attendance at creditors'; meetings and compliance with operating guidelines throughout the case. These obligations add to management time and professional costs even in straightforward cases.
What happens if a foreign scheme of arrangement is not recognised under Chapter 15?
If a US court denies Chapter 15 recognition, the foreign scheme cannot be enforced against US-based creditors through the US court system. Those creditors retain the right to pursue their claims in US courts independently. In practice, this means the debtor may face parallel litigation in the USA while the foreign scheme proceeds elsewhere. The foreign representative can reapply if circumstances change, or the debtor may need to consider a separate Chapter 11 filing to address US creditor claims. The risk of non-recognition is highest where the debtor';s COMI is genuinely disputed or where the foreign proceeding raises public policy concerns under US law.
How long does a Chapter 11 reorganisation typically take, and what drives the timeline?
A prepackaged Chapter 11 can be completed in as little as 30 to 60 days from filing. A pre-negotiated case typically takes three to six months. A fully contested Chapter 11 - where creditors dispute the plan, valuation or classification of claims - can last one to three years or longer. The main drivers of timeline are the complexity of the capital structure, the number and diversity of creditor classes, the presence of litigation claims, and whether the debtor can achieve a consensual plan. Subchapter V cases are designed to conclude within three to five months from filing, subject to court scheduling.
Should a foreign company restructure in its home jurisdiction or file Chapter 11 in the USA?
The answer depends on several factors: where the company is incorporated, where its assets are located, the governing law of its debt, and the composition of its creditor base. A company with predominantly US assets and US creditors will generally find Chapter 11 more effective because it directly binds US parties and protects US assets through the automatic stay. A company with limited US exposure may prefer to restructure in its home jurisdiction and seek Chapter 15 recognition for US purposes only. A hybrid approach - restructuring in the home jurisdiction with parallel Chapter 15 recognition - is increasingly common for multinational groups. Each approach carries different costs, timelines and legal risks.
The USA does not have a scheme of arrangement in the English-law sense, but Chapter 11, Subchapter V and Chapter 15 together provide a comprehensive restructuring framework that serves comparable purposes. Choosing the right mechanism requires careful analysis of the debtor';s corporate structure, asset location, creditor composition and governing law of debt instruments. Cross-border situations involving both US and foreign elements are particularly complex and benefit from coordinated advice across jurisdictions.
VLO Law Firms advises international clients on bankruptcy and restructuring matters in the USA. We can assist with Chapter 11 filings, Chapter 15 recognition proceedings, cross-border restructuring strategy and creditor negotiations. To request a consultation, contact: info@vlolawfirm.com