Under Part XV of the Companies Act the Court has a broad power to declare any arrangement, amalgamation or compromise binding in respect of the company or companies concerned¹¹.

A scheme of arrangement under Part XV can take a wide variety of forms. It can be an amalgamation in the same form as under Part XIII but instead be carried out with Court supervision. It could also be the acquisition of a company by another company.

Under Part XV of the Companies Act the Court is free to determine what it shall take into consideration in approving scheme proposals and what processes are appropriate.

Before making a final order under Part XV the Court may, of its own volition or in response to an application from an interested party, make initial orders:

(a)

Requiring that notice be given to certain persons;

(b)

Requiring the holding of meetings and specifying the method of shareholder approval;

(c)

Requiring that a report be prepared and distributed: and/or

(d)

Specifying who is entitled to be heard on the application¹².

The Court also has the ability to make additional orders in relation to the scheme. The Court can use this ability to make orders to protect those who oppose the proposed scheme.

Unlike an amalgamation under Part XIII dissenting minorities do not have buy-out rights under section 110 in respect of schemes of arrangement.

Like an amalgamation, a scheme of arrangement will only have Code consequences if it results in a person becoming the holder or controller of more than 20% of the voting rights in a code company.

It is sometimes possible for parties increasing voting control in a code company under a scheme of arrangement to comply with both the requirements set down by the Court in respect of that scheme and the requirements of the Code in a similar manner to amalgamations, i.e. by seeking shareholder approval for an acquisition or allotment in compliance with the Code as well as in compliance with the requirements set down by the Court. In such situations shareholders would probably have two votes on the same transaction.

There are some circumstances in which compliance with the Code is required in respect of a transaction under a scheme but is not technically possible. The Panel has previously indicated that it is likely to grant exemptions to parties who cannot comply with the Code in respect of an acquisition or allotment under a scheme of arrangement. The conditions of any such exemption would be based on the principles of the Code. The Panel's policy on schemes seeks to ensure that the principles of the Code are not subverted by the use of a scheme, particularly in respect of the thresholds for approval of schemes.

However, it is possible to structure schemes to avoid the jurisdiction of the Code entirely. A scheme can be structured as an amalgamation where the code company goes out of existence or the scheme can provide for the cancellation of voting rights in a code company before any person acquires the relevant shares. In both cases the ultimate result is the same as if there were an acquisition under the Code but there is no breach of the fundamental rule because no person will become the holder or controller of voting rights in the code company under the scheme.

If a scheme in respect of a merger with or acquisition of a code company is structured in a manner that avoids the application of the Code, the transaction will proceed only on the basis of the requirements of the Court. The level of shareholder support and the procedure required for the transaction to be approved will be determined by the Court which has no obligation to take into account the principles of the code and the special protections for code company shareholders contained in the Code.

In the past two years two mergers structured as schemes of arrangement have utilised the technical device of cancelling voting rights attaching to shares in a code company before those shares were acquired. One of those transactions¹³ was the scheme to merge Independent Newspapers Limited and Sky Network Television Limited. Both companies were code companies. Under the scheme a new company (Newco) acquired all of the shares in INL and Sky in return for scrip and cash consideration issued to the shareholders of INL and Sky. In order to avoid the jurisdiction of the Takeovers Code the scheme provided for the cancellation of all Sky and INL voting rights immediately before the shares were acquired by the Newco. Accordingly no person became the holder or controller of voting rights in an existing code company as a result of the scheme, even though Newco acquired all the shares in the two code companies. The Panel considers that this scheme was intentionally structured to avoid the provisions of the Code.

INL and Sky also relied on a class exemption for allotments under initial public offers to comply with the Code in respect of the allotment of shares in a new code company under a scheme¹⁴.

It was the INL and Sky transaction which first prompted the Panel to further consider the relationship between the Code and the reconstruction provisions of the Companies Act.