Mergers and acquisitions (M&A) are a feature of the corporate landscape. A common mechanism used to enable an M&A is the scheme of arrangement. The Scheme is a flexible tool used to effect a compromise or arrangement between the company and its shareholders.
A Scheme has three stages under the statutory framework prescribed in the Companies Act (Chapter 50 of Singapore) (Companies Act).
First, an application is made to the Singapore High Court (Court) for an order that a meeting of shareholders (Scheme Meeting) be summoned. The Court will typically sanction the voting arrangements of the Scheme Meeting (within the framework prescribed by the Companies Act) at this stage.
Then, the corporate proposals, including the Scheme proposal, are put before the Scheme Meeting to be approved by the stipulated majority of shareholders.
Last, if the proposals are so approved, the Court may in its discretion sanction the Scheme.
In terms of the stipulated majority that must approve a Scheme proposal, the Companies Act provides that a majority in number of shareholders (headcount test) representing at least three-fourths in value (value test) of the shares held by shareholders present and voting either in person or by proxy must approve the proposal.
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Schemes relating to trusts (such as REITs and business trusts), or trust schemes, also follow similar procedures, as set out in the Singapore Code on Take-overs and Mergers.
One proxy rule
To enfranchise indirect investors and CPF members, the Companies (Amendment) Act 2014 introduced a multiple proxies regime which permitted custodian banks, nominee banks and the CPF Board (Relevant Intermediaries) to appoint more than two proxies to attend and vote at shareholders’ meeting.
However, the multiple proxies regime is generally not applied to Scheme Meetings by practitioners, due to concerns on vote splitting to meet the headcount test. The Companies Act expressly provides that each member may only appoint one proxy to attend and vote at Scheme Meetings (one proxy rule), with discretion granted to the Court to deviate from the one proxy rule.
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The one proxy rule has precluded Relevant Intermediaries from submitting the two separate aggregate values, of both the votes “for” and “against” cast by their clients. Instead, Relevant Intermediaries will only indicate a vote one way (either “for” or “against”) based on the collective majority vote received from their clients. The value of that vote will generally take the “offset” approach, which is the difference between the aggregate value of the votes “for” and the aggregate value of votes “against”.
Accordingly, the votes of shareholders who hold their shares through the Relevant Intermediaries may not be fully represented at Scheme Meetings.
Recent development where proxy votes may be better represented.
In a recent Scheme, Relevant Intermediaries have been specifically directed by the Court that they need not cast all the votes one way, provided that each vote exercised relates to a different share.
Accordingly, for the value test, the aggregate value of votes “for” and the aggregate value of votes “against” provided by shareholders to Relevant Intermediaries should be reflected by Relevant Intermediaries in the proxy form.
For the purposes of the headcount test, where the majority of the votes cast by each Relevant Intermediary is “for”, one vote will be attributed to “for”; where the majority of the votes cast by each Relevant Intermediary is “against”, one vote will be attributed to “against”. If the number of votes cast “for” and “against” are equal, one vote will be attributed to each of “for” and “against”.
Subsequent Scheme Meetings have also adopted similar voting arrangements. This has led to an outcome that more fully represents shareholders’ votes, including shareholders who hold their shares through Relevant Intermediaries.
SGX RegCo considers this a positive development. Issuers are encouraged to adopt these voting practices at their Scheme Meetings. Relevant Intermediaries and investors should take note of this development and pay attention to the voting arrangements for shareholders who hold shares through Relevant Intermediaries when considering future Schemes.
Tan Boon Gin is CEO of SGX RegCo; Michael Tang is head, listing policy and product admissionat SGX RegCo
