Australia: What do courts consider when approving a scheme of arrangement meeting of company shareholders?

Last Updated: 20 June 2017
Article by Lis Boyce
Services: Corporate & Commercial
Industry Focus: Financial Services, Insurance, Life Sciences & Healthcare, Real Estate & Construction

What you need to know

  • A recent decision of the Federal Court of Australia provides a window into the figurative mind of the court when considering whether to approve an application to convene a shareholders meeting to approve a Scheme of Arrangement.
  • The decision helpfully outlines the process that courts will typically follow in considering such an application, and also deals with the unusual situation of an expert report finding a scheme to be 'not fair' but 'reasonable'.
  • The decision illustrates that the courts will not usually pre-empt the shareholders' meeting, unless a proposed scheme is so blatantly unfair that it should not even be put to shareholders.

Recap on Schemes of Arrangement

A Scheme of Arrangement is a useful structure to effect a takeover of a company where the parties are in agreement about the overall transaction. The advantages of the Scheme of Arrangement approach include:

  • allowing some flexibility, such as the ability to handle different classes of shares
  • providing a lower threshold for an acquirer to achieve control than the threshold required under a takeover bid (with the respective thresholds being 75% of the votes in a meeting of shareholders to approve a scheme vs achieving ownership of 90% of the shares in the target).

However, an important trade-off is that the Scheme of Arrangement approach involves more extensive scrutiny from ASIC and the court.

Where a company proposes a Scheme of Arrangement to effect a takeover, there are two stages at which the court becomes involved to approve (or not approve) the relevant scheme proceeding:

  1. deciding whether to convene a meeting of shareholders to consider the Scheme of Arrangement, and
  2. if the shareholders do meet and approve the Scheme of Arrangement, deciding whether it should proceed to implementation.

The Blackgold case

In Blackgold International Holdings Limited, re Blackgold International Holdings Limited [2017] FCA601, the Federal Court of Australia (Court) considered the first stage.

Blackgold, an ASX listed company, had announced a proposed Scheme of Arrangement (Blackgold Scheme) whereby Vibrant Group Limited would acquire all of the shares in Blackgold for 4.5 cents per share. Immediately before announcing the Blackgold Scheme, the shares of Blackgold had traded at about 2 cents a share.

Key matters considered by the Court

In determining whether a meeting should be convened for shareholders to consider the Blackgold Scheme, the Court considered four key questions.

  1. Did the scheme in question fall within the statutory concept of an arrangement?
  2. Section 411 of the Corporations Act 2001 (Cth) (Corporations Act) sets out the statutory concept of a Scheme of Arrangement. In the case of the Blackgold Scheme, it was clearly a scheme fitting that concept.

  1. Had the Corporations Act and Regulations been complied with and was there sufficient disclosure so that shareholders were properly informed about the Scheme?
  2. In this matter, the Court noted that there had been considerable engagement between Blackgold and ASIC over the three months leading up to the Court hearing. The discussions had resulted in the revision of the Blackgold Scheme booklet. In documents submitted to Court, directors of both Blackgold and Vibrant provided evidence that the statements in the Blackgold Scheme booklet were true and not misleading and there was also an outline cross referencing the relevant parts of the Corporations Regulations with parts of the booklet. The Court was satisfied that both the Corporations Act and Regulations had been complied with, and that there was sufficient information in the booklet.

  1. Did ASIC have a reasonable opportunity to examine the Scheme and had it been given notice of the hearing?
  2. The Court noted ASIC's extensive involvement in reviewing the Blackgold Scheme documents as well as confirmation from ASIC that it had received appropriate notice of the hearing.

  1. Was there anything obvious about the Blackgold Scheme which would, if the shareholders did approve it, preclude the Court from making final orders at the second hearing?
  2. In this context the Court focused on the expert report which stated that the Scheme was 'reasonable' but not 'fair'. The expert who prepared the report concluded that the Blackgold Scheme was not fair because the value offered was lower than the expert's calculated range (between 7.4 and 36.7 cents per share). However the expert still concluded that the Blackgold Scheme was reasonable because:

    • the shares in Blackgold were thinly traded so the Blackgold Scheme provided an opportunity that shareholders would not otherwise have to realise value from their shares
    • Blackgold's activities included mining in China which faced risks of changes in regulation and approvals.

In considering what to do about the expert report, the Court noted that it was ultimately up to the shareholders to decide. The Court looked at previous authority confirming that when considering an application to convene a scheme meeting, this is not a time for the Court to make a detailed analysis of the merits of the scheme. While it is possible that the Court might decide that a scheme was so blatantly unfair or otherwise inappropriate that it should be stopped before going to shareholders, it is not for the Court to satisfy itself that the scheme presented to shareholders was the best possible one that could be offered.

Therefore in the Blackgold case, the Court proceeded to order that the scheme meeting be convened, noting that if any shareholders had particular objections they could appear at the second hearing and place those objections before the Court.

Key takeaways

For any company contemplating a Scheme of Arrangement to effect a takeover, this case provides a useful overview of how the Court will approach an application to convene a meeting of shareholders to approve the scheme in question,particularly where there are questions about whether the value being offered is fair. Where a company proposes to make such an application, it is prudent to consider the key issues in advance to help improve the prospects of the application being approved.

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.