Australia: Is A Scheme Of Arrangement The Right Choice For Me?

Schemes of arrangement are commonly used mechanisms under the Corporations Act 2001 to acquire listed companies or restructure corporate groups. There are two principal structures that can be used to acquire all the voting shares in a public listed company - a takeover bid under Chapter 6 of the Corporations Act or a scheme of arrangement under Chapter 5 of the Corporations Act. In the listed public company sector, schemes of arrangement are increasingly being used instead of takeover bids to achieve a change of corporate control.

What is a Scheme of Arrangement?

A scheme of arrangement is a scheme put in place to bind the company's creditors and/or members to some form of rearrangement of their rights and obligations. The arrangement must be approved by the Court as well as by creditors and/or members of a company, or any class or classes of them, in accordance with section 411, Part 5.1 of the Corporations Act.

How does it work?

The four main steps in implementing a scheme of arrangement are:

  • First Court Hearing - the Court orders that meetings of affected creditors and/or members be convened
  • Creditors and/or members must approve the scheme by special majority
  • Second Court Hearing - the Court then makes orders approving the scheme
  • A copy of the Court's order is lodged with the Australian Securities and Investments Commission (ASIC), from which time the scheme takes effect.

Section 411(17) of the Corporations Act states that the Court must not approve a scheme unless:

  • it is satisfied that the scheme has not been proposed forthe purpose of enabling any person to avoid the operation of any of the takeover provisions of Chapter 6
  • ASIC produces a certificate to the Court stating that it has no objection to the scheme.

However, a Court need not approve a scheme merely because ASIC has produced its certificate to the Court. ASIC will not produce its certificate unless the shareholders of the target receive protection under the scheme equivalent to the treatment they would receive under a takeover. This requires that the target shareholders have access to the type and standard of information in the scheme documentation which would be required for a bidder's statement, and for the scheme to provide essentially the same protections as are provided to target shareholders in a Chapter 6 takeover bid.

Even if ASIC has no objection to the scheme documentation, it is not usual for ASIC to provide its certificate at the first court hearing. ASIC's policy is to wait until the second court hearing, where the company seeks approval for the scheme, to ensure that the scheme meeting has been properly convened and held before it provides its approval.

For a scheme to succeed and in order to obtain 100% of the target, a bidder needs a majority of the shareholders by number present and voting at a general meeting, who represent 75% by value of the shares present and voting, to approve the scheme. Under a takeover bid, the holders of at least 90% of shares must take positive action to accept the bid before the outstanding minorities can be compulsorily acquired.

Schemes of arrangement have certain advantages over Chapter 6 takeover bids, including:

  • A scheme is an 'all or nothing' proposition with an outcome known by a certain date - either the shareholders and the Court approve the scheme, in which case, the acquirer will obtain 100% of the target or the scheme is not approved and the acquirer gets nothing.
  • The nature of a scheme of arrangement allows for a more flexible approach to the structure of a transaction, as anything can be included in the scheme documents.

Other important points to note include:

Friendly - The most recognised distinction between a scheme of arrangement and a takeover conducted under Chapter 6, in relation to a change of control, is that a scheme of arrangement is only useful in friendly (not hostile) transactions.

Procedure - The advantage of flexibility of structuring must be weighed against a more flexible procedure in a takeover. A takeover does not require Court approval or the approval of the target shareholders in a general meeting.

Changes - In a scheme, once the scheme documentation is dispatched to the shareholders and the meeting dates are set, the effect of intervening events may be harder to manage because the shareholders must also be given sufficient time to consider information relevant to their decision, and any changes to the terms of a scheme during the process will require the parties to return to Court for approval.

Control - While a takeover is a process run by the bidder, a scheme of arrangement is a process run by the target, as it is effected through a meeting of the target's shareholders to approve the scheme.

Schemes of Arrangement v Takeovers


  • useful only in agreed transactions
  • all or nothing propositions
  • approval thresholds
  • inflexibility of Court process but flexibility of timing
  • flexibility of arrangements contemplated by scheme
  • break fees can be negotiated as it is in a friendly transaction.


  • often used when there are a number of bidders
  • if the bidder already has a large stake in the target, the voting requirements may be easier
  • where compulsory acquisition is not essential, at least in the short term
  • where variations to the bid will probably need to be made.

Corporate Reorganisation

A scheme of arrangement can be used in corporate restructures as well as takeovers and is therefore a useful tool in the current economic conditions. It can be tailored to novel or complex corporate structures or be used for major group reconstructions.

While some forms of corporate restructuring can be achieved by special resolution of the members, other forms of corporate restructuring are outside the specific statutory provisions and beyond the power of the members in a general meeting. Where this is the case, section 411 permits a scheme of arrangement to be used to reorganise the company in a manner which will be binding on a dissenting minority of members.

A scheme may also be used to transfer the undertaking, assets and liabilities of a company to a new company on the terms that shares in the old company will be cancelled and shares in the new company will be allotted to former holders in proportion to their former holdings.

Alternatively a scheme can be used to bring about an amalgamation by which several companies transfer their respective assets to a new company or to an existing company in return for the transferee company allotting its shares or debentures to the members or debenture holders of each transfer or company.

Swaab was recently named a 2009 Winner in the ALB Employer of Choice awards, and was winner 'Best Law Firm in Australia (Revenue < $20m)' and 'Attribute Award for Exceptional Service (Australia Wide)' in the 2008 BRW- Client Choice Awards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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”

Mondaq Advice Centre (MACs)
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.


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.