Here is what is going to happen AND what the courts consider in the 2nd hearing shortly after the vote:
The meeting of target shareholders to vote on the scheme (ie. the scheme meeting) is usually held about 28 days after the despatch of the scheme booklet. For the scheme to be approved by shareholders, it must be approved at meetings of each ‘class’ of shareholders as follows:
the scheme must be approved by a majority in number of the target shareholders in the relevant class who have cast votes on the resolution (but note that the court has the power to waive this requirement); and
the scheme must also be approved by 75% or more of the votes cast on the resolution by target shareholders in the relevant class.
If the bidder or its associates hold any target shares, they must usually either refrain from voting or vote in a separate class. The practice is for the bidder and its associates to refrain from voting. (e) Scheme classes
The requirement for a scheme to be approved by each class of shareholders makes the formation of classes of utmost importance.
The rule is that, for the purposes of a scheme, a class of shareholders are those ‘whose rights are not so dissimilar as to make it impossible for them to consult together with a view to a common interest.’ This involves an analysis of: the rights against the company which are to be affected by the scheme; and the new rights (if any) which the scheme gives, by way of compromise or arrangement, to those whose rights are to be so affected.
The concept of scheme classes should not be confused with classes of shares. In a scheme context, different classes can arise as between shareholders who hold the same type of share (eg ordinary share). This is because a scheme can potentially confer different benefits on different shareholders. A clear-cut example of the creation of scheme classes is where one set of target shareholders is offered a specific type of scheme consideration (say, shares in the bidder) whereas all other shareholders are offered cash only. This is allowed in a scheme as the collateral benefits rule in takeover bids does not apply to schemes. Differential consideration is not possible in a takeover bid given the collateral benefits rule plus the requirement that all offers must be the same.
But it is rarely this straightforward. There are often complex questions of whether scheme classes arise where one target shareholder has entered into an arrangement with the bidder that is separate from, but conditional upon, the scheme (eg an asset sale). The general principle ought to be that where the separate arrangement is struck on demostrably arm’s-length terms there is unlikely to be a class issue, though this has yet to be properly tested as the practice has been for target shareholders who are party to a ‘side deal’ with the bidder to abstain from voting on the scheme.
The creation of separate classes can be problematic because it gives each class of shareholders an effective veto right over the scheme. Even where there are no separate classes, a Court may take into account the fact that particular target shareholders have extraneous commercial interests when exercising the court’s discretion in deciding whether to approve a scheme.The Court can, as part of its fairness discretion, disregard the votes of target shareholders with extraneous interests. (f) Second court hearing
If the scheme is approved by target shareholders and all scheme conditions have been satisfied or waived, the target returns to court for an order approving the scheme. The court hearing usually occurs within a day or two after the scheme meeting.
At that second court hearing the court does have a discretion to refuse to approve the scheme. The courts are normally reluctant to impose their own commercial judgment in relation to a scheme that has been approved by shareholders, except in very limited circumstances such as where the relevant scheme offends public policy. However, courts are not permitted to approve a scheme unless: it is satisfied that the scheme has not been proposed for the purpose of avoiding the requirements of Chapter 6 (ie. to avoid using the takeover bid structure), or ASIC issues a no-objection statement.
