A Comparison of the Law Relating to Schemes of Arrangement and Takeover Offers in New Zealand

Abstract

This paper explores the increasing popularity of schemes of arrangement under the Companies Act 1993 as an alternative mechanism to effect corporate takeovers by comparing schemes with traditional takeover offers under the Takeovers Code. Parts I and II of this paper introduce and provide background on the rationale for the regulation of takeovers. Parts III and IV explain the law relating to takeover offers and schemes, including an explanation of the process for effecting a takeover under both mechanisms. Part V of this paper considers whether shareholders are adequately protected when a takeover occurs by way of a scheme in comparison to the Code’s paradigm of shareholder protection. Part V submits that shareholders are sufficiently protected as the result of several additional protections that form part the scheme process. Part VI of this paper discusses the advantages and disadvantages of a scheme when compared to a takeover offer to understand why a bidder may choose to structure a takeover as one over the other. As a result of this comparison, this paper submits that while there are arguable advantages and disadvantages to both mechanisms, on balance, both can produce a successful outcome for a bidder. Finally, this paper explores the potential to reform the Companies Act to make the scheme process more efficient.