Corporate restructuring, schemes of arrangement and delisting
Corporate restructuring, schemes of arrangement and delisting
This domain tests how companies are reorganised, privatised or removed from the market: schemes of arrangement, capital reorganisations, reverse takeovers and the delisting machinery.
Schemes of arrangement
- Governed by Part 13 Division 2 of the Companies Ordinance (Cap. 622): a compromise or arrangement between a company and its members or creditors.
- The court convenes the meeting; the scheme needs approval by a majority in number representing at least 75% in value of the members or creditors present and voting, then the court's sanction.
- Once sanctioned and filed with the Registrar, the scheme binds all members, including dissenters - no 90% squeeze-out is needed.
- In a privatisation by scheme the offeror votes in a separate class (or is excluded), so it cannot carry the vote.
- Capital reorganisations - share consolidation, subdivision, capital reduction - need shareholder approval and, for a reduction of capital, the statutory or court procedure.
Delisting and reverse takeovers
- Rule 6.01A: after a trading suspension the issuer has 18 months (Main Board) or 12 months (GEM) to remedy the underlying issue, failing which listing is cancelled.
- Rule 13.24 requires sufficient operations or assets; a shell with no substantive business risks delisting.
- Rule 14.06B: an acquisition amounting to a reverse takeover - a change of control plus an acquisition that would make the issuer a new listing applicant - is treated as a new listing and needs Exchange approval; a 36-month restriction applies to disposal of control after a change of control.
- Voluntary withdrawal requires shareholder approval and a delisting resolution.
Worked example
A controlling shareholder holding 55% proposes to privatise the issuer at HK$5.00 when the shares trade at HK$3.50 - a 42.9% premium. Because the offeror cannot vote its 55%, the scheme needs 75% in value and a majority in number of the independent shareholders voting, plus court sanction. If the vote fails, the shares remain listed and the offeror is bound by the Code's restrictions on a further offer.
Traps
- Importing the 90% squeeze-out test into a scheme of arrangement.
- Ignoring the headcount test (majority in number).
- Using the wrong suspension period - 18 months Main Board, 12 months GEM.
- Treating a large acquisition by a shell as an ordinary major transaction rather than a reverse takeover.
- Forgetting that a sanctioned scheme binds dissenters once filed with the Registrar.