The Twitter-Elon Musk takeover saga has caused a lot of speculation in the local market about the ability of a bidder to walk from an Australian scheme of arrangement.
Our market would be improved if we adopted the US and UK practice of requiring that all material documents are published on the ASX or the target’s website. Just summarising the key terms in the scheme booklet might have made sense in the pre-internet days, but no longer. When these provisions have been considered by our courts, the courts have concluded they are not a reason to refrain from convening a scheme meeting. That makes sense from the narrow perspective of giving the shareholders an opportunity to sell their shares if everything goes well. However, it can create a very fragile situation.
The courts only partially address the risk of the bidder not completing a scheme transaction . This is done by requiring that the scheme consideration is put into a trust account controlled by the target and the shares can only be transferred to the bidder after payment has been made to the selling shareholders.But this does not address the risk that the bidder may seek to back out or fail to put the money in the trust account in the first place.
These issues are not adequately addressed by disclosure of the limitations of the parties’ arrangements. It is more fundamental and goes to the heart of a proper functioning market.