Mergers & Acquisitions
7. Scheme of Arrangement
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 22 Aug 2015
- A scheme of arrangement is a court approved legal arrangement between shareholders of a company and the company itself. The bidder is not party to the arrangement. Once the scheme is agreed to by both the court and shareholders the bidder owns 100% of the target shares.
- A scheme of arrangement is established at the target's initiative. It will be subject to the terms of any agreement between the bidder and the target company.
- A scheme of arrangement is usually a shareholder-approved and court approved arrangement. Because of this a scheme is only suitable for friendly takeovers where all directors and majority shareholders are receptive to the takeover offer.
- It the bid is successful the shares of any target and its shareholders must be transferred to a bidder in exchange for consideration or they must be cancelled.
- A scheme is also subject to an acquisition threshold. Approval to the bid must be obtained through a vote of shareholders and must be agreed to by 75% of votes cast and also a majority of all the target shareholders. The majority is 'by number'.
- If you wish to acquire the share interest through a scheme of arrangement there are two court hearings that must be undertaken. The first hearing is for a direction that the target organise a shareholder meeting to approve of the various terms and the second is to approve the scheme itself. The Australian Securities and Investments Commission (ASIC) has the right to object to the scheme.
- As the scheme of arrangement is controlled by the target company they must prepare a scheme booklet. The booklet must disclose a large degree of information to enable the shareholders and the bidder to decide whether to accept the arrangement.
- Generally a scheme of arrangement will be more flexible and the deal can be altered at any stage subject to some conditions.
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