Schemes of Arrangement, Takeovers and Minority Shareholder Protection

Abstract

Schemes of arrangement are an extremely valuable tool for manipulating a company’s capital. Nothing in the Companies Act 2006 prescribes the subject matter of a scheme. In theory a scheme could be a compromise or arrangement between a company and its creditors or members about anything which they can properly agree amongst themselves. However, one of the most common uses of a scheme is as an alternative to a takeover offer. Indeed, in recent years schemes of arrangement have become the structure of choice for recommended bids. This paper examines the use of schemes of arrangement as an alternative to takeover offers, and in particular compares the level of protection for minority shareholders available under both structures. It might be expected that the level of protection would be equivalent, but this is not the case in practice. Significantly greater protection is put in place for minority shareholders in the target company by takeover regulation than exists in the context of a scheme. However, the purpose of minority protection is quite different within these two structures. This article suggests that the lower level of protection in schemes is justified within this context.

Keywords: Company Law, Schemes of Arrangement, Takeovers