Understanding the Basics of Plans of Arrangement

While parties to potential M&A transactions generally want to avoid court, there is at least one transactional model in which parties seek out court involvement to achieve the efficient conclusion of a successful M&A transaction: a plan of arrangement.

What is a Plan of Arrangement?

Plans of arrangement involve a legal process that allows companies to ask a court to oversee corporate changes.

More specifically, plans of arrangement involve court oversight of the transactional process, from approving the corporation(s)’s proposed stakeholder meeting to consider the M&A transaction through to approval of the resulting articles of arrangement that implement the transaction.

Plans of arrangements are governed by statute: the availability of plans of arrangement, along with the required process and the roles and responsibilities of the court and corporate stakeholders, are provided for in federal and provincial business corporations acts.

Generally speaking, the court will approve transactions where the required process was followed, the transaction was proposed in good faith, and the resulting corporate arrangement is fair and reasonable.

Why Use a Plan of Arrangement?

Plans of arrangement impose order on complex transactions and can introduce a welcome element of certainty to the transactional process.

Plans of arrangement are flexible and can be used to achieve a variety of outcomes. They can also be used to accomplish multiple goals in a single transaction. For example, a plan of arrangement can be used to combine a share exchange, an amalgamation, and a continuance into one court-approved process, allowing a corporate group to reorganize its capital, merge subsidiaries, and domesticate to another jurisdiction in a single step.

Further, plans of arrangement can be used to address and overcome minority shareholder objections. For example, while plans of arrangement require shareholder approval, they do not require unanimous shareholder approval, and as such can be used as alternatives to certain contractual transactions (like direct share purchases) that would require all shareholders to sign on to the deal.

What is Involved in a Plan of Arrangement

Generally, the parties to the transaction agree to an arrangement agreement, which sets out the basis for the transaction(s) along with a detailed explanation of the transactional process, among other things.

The parties then apply to the court for approval of the transactional process.

Provided the court approves, it will issue an order (the “Initial Order”) setting out the required steps, which will generally include a shareholders meeting and the distribution of a meeting circular, along with requirements for the meeting, information to be shared in relation to the meeting, and the required threshold for transaction approval.

Following the shareholders meeting and provided the requirements in the Initial Order are met, the court will assess whether the transaction is fair and reasonable. This consideration may include a number of factors, including the approval of relevant shareholders and stakeholders and their treatment in the deal.