The Corporations and Markets Advisory Committee (CAMAC) has released a report recommending an overhaul of schemes of arrangement – a move that Freehills partner Tony Damian for one said would make Australia a more attractive place for foreign investment and increase the workload for M&A lawyers.
CAMAC was asked by the Howard Government to consider whether to remove the ‘headcount’ test for shareholder approval of schemes whereby a majority in number of shareholders voting on the scheme in addition to 75% of the shares voted is needed. As well as recommending the removal of the ‘headcount’ test, CAMEC also called for a number of other changes including the introduction of a ‘clear, concise and effective’ requirement for scheme documents and the empowerment of courts to approve a scheme even if the classes of shareholders were incorrectly constituted.
If implemented, Damian said these changes would make schemes of arrangement more attractive and increase the amount of work for M&A practices. “It can only promote a healthy market for corporate control and will encourage more M&A transactions,” he said.
The changes would also make Australia more attractive to overseas investors. Damian said that he often had to explain the ‘headcount’ test to foreign clients who questioned its relevance. “They really scratch their head at that,” Damian said. “These reforms will encourage foreign acquirers to go forward with confidence in their Australian M&A deals.”
| Period | Recommended deals implemented by schemes of arrangement |
| 1996-1999 | 40% |
| 2000-2003 | 38% |
| 2004-2008 | 46% |
Once the regulations surrounding schemes of arrangement have been clarified, Damian said takeover provisions ought to be next on the government’s agenda of M&A reform, including revisiting the minimum bid price rule which states that a bidder must make an offer at least equal to any shares the bidder has bought in the company in the past four months.
This was extended to include scrip bids, which adds a deal of complexity because the value of the bid fluctuates as the share price moves. “You end up in the funny situation where you’re testing the value of your bid consideration after you’ve actually made the bid,” Damian said. “The provisions were meant to ensure equal treatment but the way they work is not sensible – it’s not actually enacting the policy and it means that bidders are at risk to share price movements after the offering.”
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