The Panel would seek to reflect the principles behind these key requirements in making its recommendations to the Courts under the proposed amendments in respect of appropriate shareholder approval thresholds.

In respect of exemptions for schemes the Panel has previously indicated that as a condition of exemption it would generally apply a voting threshold of 75% of the votes cast by those entitled to vote and who vote at the meeting, including by proxy, and being more than 50% of the total voting rights of the target company (the "75/50 threshold requirement").

The Panel considers that such a requirement would be appropriate as an initial threshold for approval of schemes under an amended Companies Act. The 75% requirement is consistent with the current requirements in the Companies Act regarding amalgamations and the current practice of the Courts in relation to schemes of arrangement. The inclusion of the requirement that the resolution represent more than 50% of the total voting rights in the company is consistent with the principle that a takeover transaction receive the support of the holders of the majority of voting rights in a code company.

However, the 75/50 threshold requirement will not ensure that code company shareholders have rights and protections consistent with the principles of the Code in every situation.

Where there is a wide spread of shareholders the 75/50 threshold requirement may be sufficient (subject to some further qualifications mentioned later).

However, this will not be the case in respect of a code company which has a major shareholder which has effective control of the code company. For example, if a shareholder holds 51% of the voting rights in the code company, that shareholder's vote is likely on its own to determine the outcome of the resolution.

In reality a board would have put the scheme proposal forward structured around the major shareholder's preferences. The scheme could not proceed without its support.

As noted in paragraph 172 the Code provides in meeting situations that parties who formulate and promote a transaction which requires shareholder approval cannot vote on a resolution in respect of that proposed transaction. The Panel considers that this principle should be reflected in the approval thresholds for schemes in addition to the 75/50 threshold requirement.

In the Panel's view a scheme proposal should be required to be approved by a special resolution¹⁸ of those shareholders who were not involved in the formulation of the proposal ("independent shareholders"). Large shareholders will inevitably be involved in the formulation of the scheme proposal. As boards would be involved in the formulation of the scheme, board members and any shareholders they represent, and associates of those board members and shareholders, would also not be included as independent shareholders for the purposes of the vote.

The requirement for a special resolution of independent shareholders would be in addition to the initial 75/50 threshold requirement which would include all shareholders, including those involved in the formulation of the scheme.

Accordingly, the Panel's approach to a recommendation to the Court under the proposed amendment to the Companies Act would require the approval of the scheme by shareholders representing:

This requirement recognises that:

Schemes by their very nature involve compulsion - shareholders are bound by the scheme. It is acknowledged by the Panel that these requirements represent some softening of the 90% requirement for compulsory acquisitions under the Code. As a scheme is a meeting based procedure it is recognised that the 90% requirement would make it very difficult for any scheme to be approved. Consequently the requirements referred to in paragraph 183, which significantly expanded the standard 75% majority of all voting shareholders, are very important to strengthen the voting requirements as a balance to relaxing the 90% threshold.

The exception to the approach proposed in paragraph 183 is where the transaction does not involve what should be the underlying purpose of a scheme, namely a merger of shareholder interests, where shareholders of two companies end up as shareholders of a new company.

A transaction such as the Waste Management transaction is not a merger as it involves the exit of Waste management shareholders for cash. Consequently for a scheme of this nature the requirements of paragraph 183 would not be sufficient.

The Panel considers that in such situations the appropriate shareholder approval threshold for the transaction to proceed is a resolution which represents 90% of total voting rights of the code company, i.e. the compulsory acquisition threshold contained in the Code. Shareholders in a code company should be able to rely on the fact that their shares cannot be compulsorily acquired for cash unless a person becomes the holder or controller of, or commands the voting support of, at least 90% of the total voting rights in that company.

The Panel wrote to the eleven parties who had made submissions on the Panel's discussion paper asking them whether knowledge of the likely shareholder approval thresholds to be recommended by the Panel would address their concerns about the meaning of the terms "principles of the Code" in the context of the Panel's suggested amendments to the Code and the Companies Act.

Five of the eleven respondents to the discussion paper responded to the Panel's target consultation on this matter. Some of the respondents were supportive of the Panel's proposed approach. Some respondents again expressed concerns about the need for certainty.