by Nicole Radice, Partner
The Corporations and Markets Advisory Commission (CAMAC) recently released its recommendations on a number of proposed changes to the operation of members' schemes of arrangement.
CAMAC has undertaken a broad review of the current provisions dealing with members' schemes, formulating a number of recommendations to improve the operation of the current scheme provisions.
CAMAC has recommended the following significant reforms:
- Abolish the "headcount test" for companies with share capital, with the voted shares test to remain (CAMAC acknowledged the unworkability of a similar change for companies limited by guarantee).
- Allow incorporation of documents by reference and introducing a "clear, concise and effective" requirement for information included in a scheme document to make sure that shareholders are able to readily understand these materials.
- Give the court a range of powers to fix defects and otherwise
deal with scheme provisions that are currently inflexible,
including powers to:
- approve a scheme even if the classes have been wrongly constituted for the purposes of class voting;
- order that a company's constitution be altered without shareholders having to separately approve the alteration; and
- dispense with some or all of the share capital reduction provisions where appropriate.
- Repeal the takeover avoidance provision in section 411(17)(a) of the Corporations Act 2001.
- Extend scheme provisions to cover managed investment schemes (whether listed or unlisted).
- Introduce a short-form merger procedure for companies within wholly-owned corporate groups.
Importantly, CAMAC also recommended a broader review aimed at harmonising liability and due diligence defences for information disclosures generally. As part of this, CAMAC acknowledged there is a case for the extension of the "due diligence defence" to scheme documents. This would be a welcome step towards consistency in protections afforded to directors in the context of information disclosures.
Should the Government adopt CAMAC's recommendations, the current regime governing members' schemes will become more flexible, ultimately increasing the attractiveness of schemes as an alternative to takeovers.
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