 Solution

Activate the oxime hydroxyl oxygen with thionyl chloride to give a good N–O leaving group. In the Beckmann rearrangement branch, the C–C bond anti to that leaving group migrates onto nitrogen as the N–O bond breaks. Here the migrating carbon is the spiro centre. Inserting N between that centre and the former oxime carbon expands the five-membered oxime ring to a six-membered nitrilium ion ring. Water attacks the electrophilic nitrilium carbon, followed by proton transfers and tautomerization to the observed spiro lactam. The lactam carbonyl oxygen is introduced in the aqueous work-up.

The competing Beckmann fragmentation cleaves the same anti C–C bond instead of completing migration onto N. Formation of the C≡N bond gives an open-chain nitrile and a tertiary carbocation at the former spiro centre. Loss of a proton from the adjacent chain carbon then gives the exocyclic alkene attached to the retained cyclopentane. The key distinction is N insertion and ring expansion for the lactam, versus C–C cleavage followed by elimination for the unsaturated nitrile. Stabilization of the resulting tertiary carbocation makes fragmentation plausible.