Schemes of arrangement continue to be a popular method for buyers looking to acquire public companies in Australia. An alternative to a takeover, a scheme of arrangement is a statutory process under Part 5.1 of the Corporations Act 2001 (Corporations Act) which allows a company to be acquired or reorganise its share capital, assets or liabilities with shareholder and court approval.
The increasing number of schemes is providing a greater array of examples and potentially raising some hurdles for boards considering their options for a sale. Does the market understand the mechanics, particularly companies (and their boards) encountering a scheme for the first time?
Schemes of arrangement can potentially offer more flexibility than a takeover, particularly with companies with more than one class of share. Another advantage is the binary nature of a scheme which, if approved, binds all shareholders, providing the buyer with greater certainty of outcome.
In order to obtain shareholder approval, companies looking to undergo a scheme of arrangement must provide its shareholders with an explanatory statement (often referred to as the ‘scheme booklet’) setting out the details of the scheme. Before the booklet can be issued to shareholders, it is closely scrutinised by the Australian Securities and Investments Commission (ASIC) and the court1 to determine whether shareholders are being adequately informed of the information surrounding the proposed scheme.
Key features that ASIC and the court are looking for in a scheme booklet are whether it clearly sets out the advantages and disadvantages if the scheme were to proceed, identifying any benefits to directors or key persons, and for many schemes the opinion of an independent expert (contained in an independent expert’s report).