Update on the Takeovers Panel's moves to protect shareholders

The Takeovers Panel has released a second discussion paper on the use of schemes of arrangement and amalgamations to merge or acquire code companies.

On 19 June 2006, the Takeovers Panel published a discussion paper seeking the views of market participants on whether the Takeovers Code and the Companies Act should be amended to remove schemes and amalgamations from the code and instead include the principles of the code in the provisions of the Companies Act that deal with schemes and amalgamations.

To achieve this the panel suggests that:

• the Companies Act relating to schemes be amended to require:
  
  
  • the courts to consider the code principles when approving a scheme, including the level of shareholder approval needed and the information to be given to shareholders; and
    
    
  • the courts to take into account recommendations from the panel on the court's requirements for approval of a scheme.
    
    
• the Companies Act relating to amalgamations be amended to require:
  
  
  • parties to a proposed amalgamation to obtain panel approval of the amalgamation provisions; and
    
    
  • the panel to take into account the principles of the code in determining its requirements for approval.

In a subsequent letter released to market participants, the Takeovers Panel says submissions it received on these proposed amendments were concerned about the panel's use of the term "the principles of the code" for the purpose of determining the panel's approval requirements. It indicated that this reference is in relation to the appropriate voting thresholds which it would recommend to a court on a scheme proposal or impose as a condition of approval of an amalgamation. Although the panel would not seek to impose the exact voting requirements of the code, it would look to the code principles and the underlying purpose of the code's shareholder approval requirements in determining appropriate voting thresholds.

The panel's intended approval thresholds for shareholder approval of a proposed scheme or amalgamation would be that the proposal be approved by:

• shareholders representing at least 75% of votes cast at a meeting (by those entitled), provided that they represent more than 50% of the total voting rights in the code company; and
  
  
• at least 75% of the votes of independent shareholders (namely, those shareholders who have not participated in the formulation and/or promotion of a scheme or amalgamation) cast at the meeting.

The panel considers that these thresholds reflect the code principles in so far as they recognise that a takeover transaction receives the support of the holders of the majority of voting rights in a code company (through the 75/50 threshold requirement) and independent shareholders are given a real opportunity to participate in the decision. In compulsory acquisition situations, the panel indicated that it would retain the 90% threshold requirement in the code and the minority buy-out provisions.

The panel will consider further submissions (which closed August 18) before making final recommendations to the Minister.

Enquiries and information

For more information on any of the cases, articles and features in Commercial Quarterly, please email Diane Graham or call her on 64 9 916 8849.