Part 5.1 of the Corporations Act 2001 (Cth) provides a method for a company to enter into a court approved, binding compromise or arrangement with its members or any class of them, known as a scheme of arrangement.

A scheme of arrangement is one of two primary methods available for a bidder company to conduct a takeover of a target company under the Corporations Act 2001 (Cth), the second being a takeover conducted under Chapter 6 of the Corporations Act 2001 (Cth).

Unlike a takeover, a scheme of arrangement is proposed by the target company to its members.

See Takeovers by way of schemes of arrangement.

In a usual scheme of arrangement, the target company and bidder company will enter into various documents to govern the transaction and set out their respective obligations.

When proposing the scheme to the target company’s members there are specific document and disclosure requirements under the Corporations Act 2001 (Cth) with which the target company must comply.

In addition to these requirements, because schemes of arrangement are court approved, the target company must also comply with the rules of the court hearing any application to approve the scheme.

See Document and disclosure requirements in schemes of arrangement.

A significant body of jurisprudence exists around the various requirements to implement schemes of arrangement set out in Part 5.1 of the Corporations Act 2001 (Cth). Some of these will arise more commonly than others, for example:

• determining whether the members voting on the scheme must be split into separate classes;

• whether the scheme of arrangement procedure is being used to avoid a provision of Chapter 6 ;

• addressing the rights of the holders of options in the target company’s securities; and

• the role of the Takeovers Panel.

See Common considerations in schemes of arrangement.