For a number of years schemes of arrangement have continued to be the most common method used to implement control transactions. During that same period, the documentation requirements for the first and second court hearings have grown. Both court hearings require a number of affidavits from separate individuals, even for the most straightforward transactions.
Fortunately the Federal Court has recently implemented changes which will reduce the documentation requirements for the typical scheme. While:
- these reforms do not reduce the obligation on the target to bring to the Court’s attention all relevant matters; and
- are not likely to sway a party to decide a scheme over a takeover (which is normally driven by more fundamental issues),
they bring much welcome reform to make schemes more efficient and reduce costs.
A summary of the key changes is set out below.
Reduction in evidence required at the first Court hearing
The affidavits required at the first Court hearing have been reduced to 3, being:
- a short formal affidavit annexing a company search
- the main affidavit, which will give a broad overview of the scheme and associated transactions and the process for verifying its information in the scheme booklet, and otherwise cover a range of minor matters including engagement with ASIC, the proposed chairperson and alternate chairperson for the scheme meeting, and break fee quantum
- an affidavit from the bidder regarding its verification process for its information in the scheme booklet
While written submissions are welcomed, they should generally not exceed 10 pages.
No need for a newspaper advertisement
The Court no longer requires that a newspaper advertisement be published for the second Court hearing, provided that the target releases an ASX announcement prior to the second Court hearing which includes the details of the second Court hearing, the process of opposing approval of the scheme and the name and address for service of the target.
Reduction in evidence required at the second Court hearing
At the second Court hearing, all that is excepted is a short affidavit annexing the poll report from the scheme meeting, the ASX announcement referred to above, the certificates regarding the status of the conditions precedent, and ASIC’s usual letter stating that it has no objection to the scheme. If that letter is not given, then the Court requires the affidavit to include a single paragraph to the effect that the scheme was not propounded for the purposes of avoiding the provisions of Chapter 6 of the Corporations Act 201 (Cth).
No need to approve shareholder communications
Other than the scheme booklet and any supplementary scheme booklet, the Court does not consider it necessary or desirable for it to be approving proposed communications between the target and its shareholders (e.g. inbound or outbound call scripts, ASX announcements and roadshow presentations). The Court still expects to be told at the first Court hearing of the shareholder communications which are proposed to be engaged in.
Following the announcement of these reforms, the NSW Supreme Court reissued Practice Note SC EQ to provide for simplified evidence in applications concerning schemes. While the approach taken in the Practice Note is broadly consistent with the changes highlighted above, with some differences regarding affidavit evidence concerning exclusivity arrangements, the despatch of the scheme booklet in accordance with the Court’s orders and as to voter turnout at the scheme meeting.
