Takeovers Panel
Discussion Paper: Schemes of Arrangement and Amalgamations Involving Code Companies
19 June 2006

Schemes of Arrangement in Australia and the United Kingdom

We note that in Australia and the United Kingdom schemes of arrangement are recognised as an important mechanism for effecting changes of control. However, in both of those jurisdictions it is a requirement that a scheme does not offend the takeovers regime.

In the United Kingdom a scheme is considered an offer for the purposes of the City Code and a scheme must comply with many of the requirements of the City Code.

Schemes of arrangement in Australia are governed by Chapter 5 of the Corporations Act. Takeovers are governed by Chapter 6 of the Corporations Act

Section 411(17), Chapter 5, of the Corporations Act provides that a Court cannot approve a scheme of arrangement unless:

  1. The Court is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Corporations Act (i.e. the takeover provisions); or
  2. The Australian Securities and Investment Commission provides a "no objection" statement.

We understand that the Australian Securities and Investment Commission's current practice is to issue no-objection statements if it is satisfied that the Eggleston Principles are being broadly met by the scheme of arrangement.

The Eggleston Principles are the objectives of Chapter 6 of the Corporations Act. These objectives are set out in section 602 which states that the purpose of chapter 6 (the provisions regulating takeovers) is to ensure:

  1. the acquisition of control over a relevant entity takes place in an efficient, competitive and informed market;
  2. the holders of the shares or interests, and the directors of the company or body or the responsible entity for the scheme:
    1. know the identity of any person who proposes to acquire a substantial interest in the company, body or scheme,
    2. have a reasonable time to consider the proposal, and
    3. are given enough information to enable them to assess the merits of the proposal; and
  3. as far as practicable, the holders of the relevant class of voting shares or interests all have a reasonable and equal opportunity to participate in any benefits accruing to the holders through any proposal under which a person would acquire a substantial interest in the company, body or scheme; and
  4. an appropriate procedure is followed as a preliminary to compulsory acquisition.