9) Fundamental Transactions Flashcards
What is a Fundamental Transaction
Disposing of a greater part of the companies assets or an undertaking to do so.
- refers to either more than 50% of the gross assets or more than 50% of the business measured as a going concern.
Entering into a scheme of arrangement
- binding agreement entered into between a company and its shareholders to effect structural change
Entering into a merger
For all of the fundamental transactions, you need a special resolution
What mechanisms regulate fundamental transactions?
Procedural requirements
- Special resolution, when you call a meeting of shareholders for this resolution, there are specific details and notices that you need to give shareholders.
- Appoint an independent expert to inform how this scheme is going to affect rights as a shareholder.
Minority Protection in the Form of a Special Resolution and an Appraisal Remedy
The Takeover Regulation Panel
- Panel may want oversight over the transaction to make sure that there are no sort of competition commission issues.
What are the principles related to setting aside the special resolution in terms of fundamental transactions?
Once the special resolution is passed, the shareholder (or any person that voted against the resolution) can apply to court for the transaction to be set aside.
The grounds for the transaction to be set aside:
- If the resolution was manifestly unfair to any class of shareholders
- If the vote was materially tainted by a conflict of interest or if there was non-compliance.
When is court approval needed when obtaining a special resolution?
If holders of at least 15% of voting rights oppose the resolution
If a single shareholder approaches the court in good faith, is prepared as well as able to sustain the proceedings (financially) and are alleging facts serious enough to set the transaction aside
What are “Affected Transactions” and Regulated Companies”?
The Takeover Regulation Panel oversees ‘affected transactions’ involving ‘regulated companies’:
A regulated company is:
- A public company
- A state-owned company
- A private company in which more than 10% of the securities of the company have been traded in the past 24 months prior to the transaction, then it would be a regulated company.
An affected transaction includes:
- The fundamental transactions discussed
What are included in Schemes of Arrangement?
The consolidation of securities of different classes;
- For example, making all class B shareholders, class A shareholders.
A division of securities into different classes
Exchanging any of its securities for other securities
A re-acquisition by the company of its securities (when more than 5% of a class of shares)
What are the principles relating to disposals as fundamental transactions?
Refers to either:
- More than 50% of the gross assets measured at fair value or;
- More than 50% of the business measured as a going concern
A written summary of the terms of the disposal needs to be provided to shareholders before the special resolution is taken, in the case of a disposal.
- Need to be notified of the meeting.
o Shareholders also need to be informed of their disposal rights with regards to the meeting (The Appraisal Remedy)
What are the principles relating to mergers and amalgamations as fundamental transactions?
Parties must enter into a written agreement;
Must set out the terms and means of effecting the merger or amalgamation;
Amongst other things, it must contain the proposed Memorandum of Incorporation of the company to be formed by the amalgamation or merger.
Other things could be details of directors etc
Solvency and liquidity test must be applied by each board of directors (in both companies) and they must be satisfied that the new company being formed will be solvent and liquid.
What are the principles relating to schemes of arrangement as fundamental transactions?
A scheme of arrangement is a binding agreement entered into between a company and its shareholders as a legal mechanism to effect structural change within a company or to achieve change of corporate control of a target company.
Included in schemes of arrangement:
- Consolidation of securities of different classes
o E.g. The company doesn’t want different classes of shares anymore.
o E.g. Making all class B shareholders, class A shareholders.
- A division of securities into different classes;
- An expropriation of securities from holders
o Taking shares back.
- Exchanging any of its securities for other securities;
- A re-acquisition by the company of its securities or;
- A combination of these methods.
Provision:
- A share buy-back of more than 5% of a class of shares is treated as a scheme of arrangement.
