for the interested ones-scheme of arrangements

Please note this is a long post, but IMHO, very relevant to our needs, nevertheless�c


Hi all, I have done a fair bit of research in regard to this Scheme of Arrangement, and this is what I have found. This is in no way meant to put the scare on you all, but only trying to paint a clear picture of what we can expect from what has been announced by ESG.
IMHO, and from what I have been able to ascertain, it not a very good picture though. Not unless ESG will tell us on how they expect to run this General Meeting and how they expect us to vote.

Some of these comments below are case laws extracts, others, to my understandings are precedents, and others are simply copy and paste parts of research through various rules relevant to Scheme of Arrangements, and comparisons against takeovers.



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The provisions set out that upon application for an arrangement, the Court was empowered to call a meeting of shareholders.[60] The arrangement could then only proceed if it was approved by a 75 percent majority of shareholders voting at that meeting[61] and it received the sanction of the Court.
This regime included several procedural protections for minority shareholders. Shareholders were entitled to receive a statement explaining the anticipated effect of the arrangement on the company and its shareholders and which disclosed any material interest on the part of the company's directors. Furthermore, even if the arrangement was approved by a 75 percent majority at the Court ordered meeting, the Court still had to sanction the proposal. In deciding whether or not to approve the scheme, the Court was required to take into account a number of matters including whether the scheme was such that an intelligent person of business might reasonably approve and whether the scheme was fair and reasonable to all affected parties.[62]
Dissenting shareholders who were opposed to an arrangement had very few options after the scheme was approved. Under s 209 of the 1955 Act, a shareholder could ask the Court to order that the company purchase his or her shares in the company. However such a request would only be granted if the company's conduct was 'oppressive, unfairly discriminatory or unfairly prejudicial' to the shareholder concerned and the Court considered it just and equitable to grant relief. It should be noted that this remedy was not specifically connected to schemes of arrangement but was available in any situation where the company's conduct was 'oppressive, unfairly discriminatory or unfairly prejudicial.' In light of this, it is difficult to imagine a situation where the Court might approve a scheme as being reasonable to all affected parties and then subsequently find that it was 'oppressive, unfairly discriminatory or unfairly prejudicial.'
As stated above, the Law Commission saw the need for court intervention in all cases of compromise or reorganisation to be a disadvantage. This being so it recommended that, for the purposes of amalgamations and compromises with creditors, the old s 205 regime would be broken up into two different approaches.[63] There would be a prescriptive approach whereby a 75 percent vote at a meeting of shareholders could bring about an amalgamation without court sanction (for a compromise with creditors a vote of 75 percent by value and 50 percent by number would be required), and a broad backup provision allowing the High Court to sanction an amalgamation or compromise without a vote where the prescriptive approach was not practical. The Companies Bill drafted by the Commission reflected this approach. It contained specific codes that companies were required to follow in effecting amalgamations and compromises and an alternative method whereby the High Court could sanction such a transaction where it was not practicable to follow the other procedures. Clause 195 of the Commission's draft Companies Bill stated:
Notwithstanding any provision in this Act or in the constitution of any company, where it is not practicable to effect a reconstruction or amalgamation in respect of one or more companies in accordance with the procedures set out in this Act or the constitution of those companies, those companies may apply to the Court for approval of a reconstruction or amalgamation and a Court may approve any such proposal on such terms and subject to such conditions as it thinks fit.

�gThe end result is that the Court is left with a vast discretion under Part XV.[64] The extent to which meetings are required, the majorities required at such meetings, the information required to be disclosed and the consequences of a negative vote are all left to the Court to decide with no guidance from the legislation. In light of this new provision, the Court was also faced with the question of whether the old intelligent business person test for approval of a scheme would continue to apply. In a second hearing of the Suspended Ceilings case,[65] a majority in the Court of Appeal found that since the new Part XV discretion was not dependent on creditor or shareholder approval, the enquiry by the Court might require additional considerations not appropriate under the old Act. Based on this, a more stringent test was formulated which stated that a scheme should only be approved where it would be unreasonable not to approve it. This test has, however, been rejected in the later Court of Appeal decision of Weatherson v Altus Property Investments Limited[66] where the Court favoured the intelligent business person and fair and equitable test. The Court stated that the unreasonableness test 'may not be pertinent beyond its particular context'.[67]�h

In the following circumstance for instance, simply by way of doing a merger of two companies, the rights of the shareholders was cancelled.

�gThe transaction which first prompted the Takeovers Panel to consider the relationship between the Code and the Companies Act provisions[71] was the merger of Sky Network Television Limited (Sky) and Independent Newspapers Limited (INL). Both of these companies were code companies. The two companies executed a scheme of arrangement whereby a new company was formed (MergeCo) and this company acquired all the shares in Sky and INL. Immediately before the acquisition by MergeCo all the voting rights attaching to Sky and INL securities were cancelled. Accordingly, despite the fact MergeCo had acquired all the shares in two code companies, no person became the holder or controller of voting rights in an existing code company as a result of the scheme and the Takeovers Code was not triggered. After this process was complete, Sky, INL and MergeCo were amalgamated with MergeCo remaining as the surviving company. MergeCo was then renamed Sky Network Television Limited and listed on the New Zealand Stock Exchange.[72] The Takeovers Panel was concerned that the deal was structured in this way specifically to avoid the operation of the Takeovers Code.[73] �g



The following is my taking under the above readings. And that is that, IMHO, now we can realise as to why someone is now buying big out there. IMHO, whoever is buying, and it could be quite a few different entities as well, are buying for the purpose of using those votes against us and in favour of the resolution. I have also noticed in the past, that there will also be some large amount of borrowing of shares as well, in order to push that scheme through. IMHO, and in a few simple words, we have been shafted.
The only other way that we could stop this from happening, and I stress I am not a Lawyer, would be for as many of us as possible to turn up at the meeting AND VOTE.


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****New Proposals and current rules.****

�gReform plan calls for cutting power of small shareholders
Ruth Williams
January 29, 2010

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An expert committee has called for changes that could curtail the voting power of small shareholders, as part of a broader look at the use of schemes of arrangement in corporate Australia.
The Federal Government's Corporations and Markets Advisory Committee yesterday published a report examining members' schemes of arrangement, a mechanism, often used in non-hostile takeovers, for shareholders to vote on structural change.
The committee said there should be a requirement for ''clear, concise and effective'' scheme documents, and that managed investment schemes should be subject to schemes of arrangement.
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Most notably, it called for the dumping of a headcount vote applying to schemes of arrangement. Schemes now require approval by 75 per cent of the shares voted - as opposed to the shares on issue - plus the approval of a majority of shareholders that vote on the scheme, the so-called headcount.
By contrast, in takeover bids a bidder must acquire 90 per cent of all shares on issue before moving to compulsory acquisition.
In explaining its decision on the headcount, the committee said other ''fundamental corporate matters'' were already decided on the basis of shares voted. It acknowledged concerns that the change could reduce the influence of small shareholders, but said a ''contrary view'' was that the headcount test could give them ''disproportionate power''.
The committee said small shareholders were protected by other measures, including the courts' discretion to block unfair schemes, the duty of company directors to act in shareholders' best interests and the requirement for an independent expert report on the merits of the scheme.
The Australian Shareholders Association was in favour of removing the headcount ''from a pragmatic point of view'', said the association's policy and research manager, Claire Doherty.
But, in a submission to the committee, the proxy adviser RiskMetrics argued against dumping the headcount, saying it had never defeated a scheme approved by a majority of voted shares. The committee acknowledged this, but said there was ''anecdotal evidence'' that plans for schemes had been abandoned because of the possibility of an adverse headcount vote.


Read more: http://www.smh.com.au/business/reform-plan-calls-for-cutting-power-of-small-shareholders-20100128-n1vf.html#ixzz1Sd6aPpwy�h


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****Reason of dual requirements:****

The reason of the dual requirements was explained by Barma J in In the matter of PCCW Limited �i�d�u�m�ȗL�����i�j [2009] HKCA 178:
"The requirement of a 75% majority by value is designed to ensure that only proposals that have the support of a substantial majority in value terms of the class in question will become binding on all members of the class. It has the effect that a large number of small shareholders, amounting to a numerical majority in terms of headcount, cannot cause a proposal to become binding on a minority with a substantial shareholding. But the majority by number criterion also serves a purpose, that being to provide a degree of protection for the interests of the smaller shareholders, by ensuring that a proposal which does not enjoy broad based support among shareholders individually cannot be forced through by a small minority of individual shareholders who between them control a large stake in the company. In an extreme case, absent the headcount requirement, a single shareholder holding 75% of the shares in the class voting on the proposal would be in a position to ride roughshod over the objections of all other shareholders in that class."

Scheme of Arrangement Practice in England
The practice in England was established by a Practice Note issued by Eve J in [1934] WN 142 which laid down inter alia that it was the responsibility of the company to decide how the meetings should be constituted. If meetings were incorrectly constituted or objection was taken the company must take the risk of the application being dismissed cf. Lord Millet in UDL Argos Engineering.



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****For more information about the conduct and voting during a Scheme Of Arrangement meeting, look at:****

www.camac.gov.au

It is also interesting to note that a shareholder (in the web page above) can split it�fs share holdings to other nominees that will attend the meeting and vote as requested. That has the result that more attendees become people entitled to vote, and will vote accordingly. Someone is trying to modify that clause, but to date IMHO it hasn�ft been relinquished.


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****THE PLATINUM ARGUMENT****


The Platinum arguments

Section 411(17) was the focus of Platinum's objections to M.I.M.'s application earlier this month for orders convening the meeting of its shareholders to consider the proposed scheme for the acquisition by Xstrata. Platinum argued that the transaction could and should have been undertaken as a takeover bid under Chapter 6, rather than as a scheme, with the result that the compulsory acquisition threshold of 90 per cent of all shares would apply, rather than the scheme threshold of more than 50 per cent in number present and voting representing more than 75 per cent of the shares voted. This was despite the evidence from Xstrata that a scheme of arrangement, with its high level of certainty as to outcome and timing, was the only way in which Xstrata could obtain the $4.9 billion funding necessary to complete the transaction.


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****Listed Companies Acquisitions�h****


�gListed Company Acquisitions: To Scheme or Not to Scheme?
X
X
X
by Rodd Levy, Tony Damian and Neil Pathak
Recent M&A activity in Australia shows an increase in the use of schemes of arrangement to effect the acquisition of listed companies. This article looks at the key advantages of schemes and at recent deals where the use of schemes has been questioned.


Advantages of schemes


Schemes of arrangement have a number of advantages for the acquirer over a Chapter 6 takeover bid, including the following.
Certainty: A scheme is an 'all or nothing' proposition with an outcome known by
a set date. Either shareholders and the court approve the scheme, in which case, the acquirer will obtain 100 per cent of the target or the scheme is not approved and the bidder gets nothing.
Thresholds to reach 100 per cent: Under a scheme, in order to obtain 100 per cent of the target, a bidder needs a majority of shareholders by number present and voting at a general meeting who represent 75 per cent by value of the shares present and voting to approve the scheme. By contrast, under a takeover bid, the holders of at least 90 per cent of shares must take positive action to accept the bid before the outstanding minorities can be compulsorily acquired.
Structural flexibility: With a scheme, a number of different ends may be achieved in the one transaction. For example, part of a company could be demerged to existing shareholders while the other part is transferred to an acquirer or the scheme may involve a buy back and a return of franking credits. Complex mergers with many interdependencies are well suited to the scheme procedure.�h



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****From the SMH.****

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Takeover schemes backlash grows
By Anthony Hughes
July 24 2003
Institutional investors' opposition to the escalating use of schemes of arrangements in corporate takeovers was bolstered yesterday by Australia's largest listed investment company declaring its "philosophical objections" to such offers.
Australian Foundation Investment Company, which criticised schemes that limit the ability of investors to extract fair value for their shares, also signalled it would probably vote against a $2.4 billion proposal to mop up the minorities in Perth-based regional BankWest.
Managing director of AFIC, Ross Barker, said he had recommended to the AFIC board that it vote its 2.6 million BankWest shares against the $4.35-a-share offer by Britain's HBOS, having also voted against a scheme takeover of United Energy earlier this month.
Schemes of arrangement provide certainty for the bidder because the outcome hinges on one shareholder vote, rather than a conventional bid where shareholders with more than 10 per cent can agitate over weeks or months for a higher offer price.
Mr Barker said the HBOS offer for BankWest was also at the low end of the independent expert's range of $4.20 to $4.70 a share and was "hardly a generous bid". HBOS, a 57 per cent shareholder, had warned it could withdraw support to the bank if the deal was rejected.

Shareholders will vote on the scheme August 18.

The investor backlash against schemes of arrangement was also given more impetus yesterday when South Africa's Aveng said it would fund an additional 10c dividend if minority shareholders accepted its $1.54-a- share bid for engineer McConnell Dowell. Shareholders resisting the offer, including 452 Capital and Investors Mutual, have now agreed to support the scheme, set for a vote on Friday.
Xstrata's controversial bid for MIM was an example of a scheme of arrangement. The latest to emerge is a $1.40- a-share bid for National Can Industries by interests associated with 50.8 per cent shareholder and managing director Michael Tyrrell. AFIC's Mr Barker, also a National Can shareholder, said he would wait for an independent expert's report to be released, unlike National Can's independent directors who have already recommended the offer.
"In a takeover you have to have 90 per cent of shareholders accepting [to move to 100 per cent] whereas in a scheme of arrangement only 75 per cent of those who turn up at the meeting are required," he said. "I have some philosophical objections to them requiring everybody to sell on the basis of that." AMP Henderson's chief investment officer Merv Peacock said, as a principle, he was concerned that companies were being acquired "on the cheap without enough debate".
"Schemes of arrangement should be used where there are mergers and difficult situations, not for basic takeovers," Mr Peacock said.
ANZ Investment Bank's co-head of mergers and acquisitions and McConnell Dowell's adviser, Martin Hanrahan, said schemes were on the rise because they were more suitable for companies with increasingly complex capital structures. ". . . companies are increasingly creating other forms of securities that are quasi-equity (like reset preference shares) and there are limitations under the takeovers code," he said.
A spokeswoman for the Australian Securities and Investments Commission said the regulator did not have a preference for either form of takeover as long as the quality of information provided to shareholders was the same.

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And finally, to my comments......,

So, from what you will notice, there is nothing there to state that a Proxy vote will be required/called for, in order for the meeting to determine how many shareholders will be voting for and against the resolution. And, most importantly, everything revolve, and guide me to, that only the people present at the General meeting will be allowed to vote. Interesting also to note what one of the comments/reference made above and which I refer to the contents of www.camac.gov.au


As such, and to clarify my curiosity, I have tried to ring around and see what I can find in order to share these information with the Forum.

Henceforth, I then rang ASX and I got nowhere satisfactory and no one able to tell me what the actual rules in place are for the scheme of arrangements.

I then rang ASIC, and again it was all over the place. One minute they told me that a Proxy vote would be required, but on second look and advise from a superior, they them told me that they don�ft know and to ask the company. I was then told to contact the Company and ascertain as to how they plan to run this General Meeting and/or if they allow Proxy votes to be counted and/or taken in consideration, or not.

As I am a member of the ASA, I then rang them. And again, I was told the same, but that they would do some research and advise me in a few days.

So, I am sorry to say that unless things will change a little and/or that ESG will come out clean and tell us how they plan to run this meeting and tell us what is what about voting, IMHO, we are going to be left hanging out to dry.

Cheers all, and hopefully this will help.

Buddy134


PS.... I believe, from more research that I have done, that there are some plans in place (They have been there for a while now) to modify/rectify this issue. But I may add that it has been in place for quite sometime now, and it is still in the never never lands.

Cheers.