What is an Arrangement?
An arrangement typically refers to a structured agreement or settlement that is often facilitated by an intermediary. In the context of finance and legal proceedings, arrangements are critical for managing and resolving complex arrangements, debts, and transactions. Here’s an in-depth look at various types of arrangements:
Types of Arrangements
Deed of Arrangement
A deed of arrangement is a legal document that outlines an agreement between a debtor and their creditors to regulate the repayment of debts. This is often used as an alternative to bankruptcy, providing a structured plan for debt repayment.
Scheme of Arrangement
A scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors. This scheme is often used to reconstruct a company, settle disputes, or enable mergers and acquisitions.
Voluntary Arrangement
A voluntary arrangement is a legal process where an insolvent individual or company makes a formal proposal to creditors to pay off debts over time. This includes:
- Individual Voluntary Arrangement (IVA): Used by individuals to resolve personal debt.
- Company Voluntary Arrangement (CVA): Used by companies to reorganize debt without entering liquidation.
Intermediary Arranged Transactions
In certain transactions like real estate sales or mortgage arrangements, intermediaries play a pivotal role. An estate agent or broker acts as the facilitator between the buyer and the seller, ensuring all legal and financial requirements are met to close the transaction.
Examples
- Deed of Arrangement: A struggling business may negotiate a deed of arrangement with creditors to avoid bankruptcy and continue operations.
- Scheme of Arrangement: A company facing a takeover might use a scheme of arrangement to agree with shareholders on the terms of the acquisition.
- Voluntary Arrangement: An individual with overwhelming personal debt might enter an IVA to repay creditors over a manageable period.
- Real Estate Arrangement: An estate agent arranges the sale of a property and facilitates the mortgage process through a bank.
Frequently Asked Questions (FAQs)
Q1: What is the difference between a Deed of Arrangement and a Scheme of Arrangement? A Deed of Arrangement is typically used by individuals or small businesses to manage debt without declaring bankruptcy. A Scheme of Arrangement, on the other hand, is a court-sanctioned process used by larger corporations to restructure debts or facilitate mergers.
Q2: How does an Individual Voluntary Arrangement (IVA) work? An IVA allows an individual to repay creditors according to a legally binding plan over a period, typically five years. Once the period is completed, any remaining unsecured debts are written off.
Q3: Can a Company Voluntary Arrangement (CVA) help a business avoid liquidation? Yes, a CVA provides a framework for a company to continue trading while repaying creditors over time, avoiding liquidation.
Q4: How is a real estate arrangement conducted through an intermediary? An intermediary such as an estate agent facilitates the transaction, including negotiations, paperwork, and liaison with financial institutions for mortgage arrangements.
Q5: Can arrangements be modified once agreed upon? Modifications can be made to arrangements such as IVAs and CVAs, but they generally require creditor approval and sometimes court sanction.
Related Terms
- Deed of Arrangement: A formal agreement between debtor and creditors to settle debts without bankruptcy.
- Scheme of Arrangement: A court-approved plan for company restructuring or dispute settlement.
- Voluntary Arrangement: A mutual agreement to pay off debts over time, applicable to individuals (IVA) or companies (CVA).
Online Resources
- Insolvency Service UK
- U.S. Bankruptcy Code
- Financial Conduct Authority (FCA)
- Real Estate Regulatory Authority
Suggested Books for Further Studies
- “Corporate Insolvency Law: Perspectives and Principles” by Vanessa Finch
- “Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, Franklin Allen
- “Real Estate Principles: A Value Approach” by David C. Ling, Wayne R. Archer
- “Understanding and Negotiating Book Publication Contracts” by Michael A. Epstein
Accounting Basics: “Arrangement” Fundamentals Quiz
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