A scheme of arrangement is an agreement between a company and either the holders of its securities or its creditors. The arrangement has to be approved by a court.
Schemes of arrangement can achieve almost any required change and may be used when a re-organisation cannot be easily (or at all) using other mechanisms. For example, some British companies used schemes of arrangement to cancel the shares of all their smaller US shareholders, in order to escape the expenses imposed by the Sarbanes-Oxley legislation.
Schemes of arrangement can also be used to entirely eliminate very long term obligations. For example, insurance companies may use them to compel policy holders to accept a one-off payment in return for putting an end to future claims that might still arise on past policies.
When used for a takeover, a scheme of arrangement can only be used for an agreed bid, because the application to the court must be made by the company whose shares are being re-organised: the target. It does however have some advantages of the bidder: for example, either the scheme will be agreed or not, so the bidder does not risk being left with a large stake (perhaps even a majority stake) but not 100% ownership.
When used to reach a compromise with creditors, a scheme of arrangement can keep a company trading rather than being liquidated, which benefits both creditors (assuming it is worth more as a going concern than its assets would be) and shareholders.