Scheme of Arrangement

What Is a Scheme of Arrangement?

A scheme of arrangement is a statutory process under which a target company proposes a transaction — typically an acquisition — to its shareholders and, if approved by the requisite majority and sanctioned by the court, the transaction binds all shareholders, including those who voted against it (Corporate Finance Institute). This mechanism is widely used in Australia, the United Kingdom, Singapore, Hong Kong, and other common law jurisdictions as a primary method for effecting public company takeovers.

Unlike a tender offer, which requires the acquirer to reach a 90% threshold for compulsory acquisition, a scheme of arrangement delivers 100% of the target to the acquirer if it achieves a lower approval threshold — typically 75% by value and a majority in number of shareholders voting.

How a Scheme of Arrangement Works

Step-by-Step Process

1. Negotiation — the acquirer and target board negotiate the scheme terms, including the offer price, conditions, and implementation timeline
2. Scheme Booklet — the target prepares a detailed booklet for shareholders that includes the scheme terms, an independent expert’s report, the board’s recommendation, and voting procedures
3. Court approval to convene — the target applies to the court for permission to convene a shareholder meeting to vote on the scheme
4. Shareholder vote — shareholders vote at a court-ordered meeting; the scheme requires approval by:
   • 75% by value of shares voted at the meeting
   • Majority in number (headcount) of shareholders who vote (in most jurisdictions)
5. Second court hearing — if shareholders approve, the court conducts a second hearing to sanction the scheme, considering whether it is fair and reasonable
6. Implementation — upon court sanction, the scheme becomes binding on all shareholders, and the acquirer acquires 100% of the shares

Typical Timeline

Phase	Duration
Negotiation and due diligence	4–8 weeks
Scheme booklet preparation	4–6 weeks
Regulatory review (ASIC, SFC, etc.)	2–4 weeks
First court hearing	1 day
Shareholder meeting	4–6 weeks after first hearing
Second court hearing	1–2 weeks after vote
Implementation	1–2 weeks after sanction
Total	3–5 months

Scheme vs Tender Offer

Feature	Scheme of Arrangement	Tender Offer
Approval threshold	75% by value + majority by number	50.1% for control; 90% for squeeze-out
Outcome if approved	100% — binds all shareholders	< 100% unless squeeze-out achieved
Board cooperation	Required	Not required (can be hostile)
Court involvement	Two hearings required	No court involvement
Regulatory review	Scheme booklet reviewed by regulator	Bidder’s statement reviewed
Timeline	Generally 3–5 months	Generally 2–4 months
Hostile use	Not available	Available

Advantages for Acquirers

• Certainty of 100% — if the vote passes, the acquirer acquires all shares with no minority holdout risk
• Lower threshold — 75% is easier to achieve than the 90% needed for compulsory acquisition following a tender offer
• Clean acquisition — no residual minority shareholders to manage post-close
• Conditionality — schemes can include conditions precedent (regulatory approvals, MAC clauses) that must be satisfied before the vote

Advantages for Targets

• Board control — the target board controls the process, timetable, and documentation
• Independent expert — shareholders receive an independent expert’s report assessing whether the scheme is in their best interests
• Court oversight — the court provides an additional safeguard that the scheme is fair and reasonable
• No partial outcome — the transaction either proceeds in full or not at all

Key Risks

• Headcount test — the requirement for a majority in number can be defeated by shareholders splitting their holdings across multiple accounts to create additional “heads” voting against the scheme
• Court discretion — the court can refuse to sanction a scheme even after shareholder approval if it considers the scheme unfair
• Timeline — the court process adds time compared to a tender offer, creating execution risk in volatile markets
• Board dependency — a hostile acquirer cannot use a scheme without the target board’s cooperation

Schemes of Arrangement in Asia Pacific

Schemes of arrangement are the dominant takeover mechanism in several Asia Pacific markets. In Australia, schemes have overtaken tender offers as the preferred structure for friendly takeovers, used in the majority of public company control transactions due to the certainty of achieving 100% ownership. In Singapore, schemes are governed by the Companies Act and supervised by the Securities Industry Council. In Hong Kong, schemes are commonly used for take-private transactions, with the SFC overseeing the process. In India, schemes are governed by the Companies Act 2013 and require approval from the National Company Law Tribunal (NCLT). AI-native platforms like Amafi help advisers model scheme voting outcomes, analyse shareholder registers, and manage the complex timeline of scheme implementations across Asia Pacific jurisdictions.