Jurisdiction - Australia
Reports and Analysis
Australia – No Association In Scheme Approval Of Reverse Takeover.
21 August, 2013




  • Target shareholders who vote in favour of an all scrip scheme of arrangement are not automatically “associates” – further indications of association are required.
  • The Court’s reasons suggest implementation agreements may give rise to association.
  • Scrip reverse takeovers will not necessarily trigger a bidder “change of control” clause.


The NSW Court of Appeal has confirmed that target shareholders who vote in favour of an all scrip scheme of arrangement are not automatically



In October 2006, IOOF Holdings Ltd acquired Perennial Investment Partners Ltd. Under an “earn out” clause, the Perennial vendors were entitled to an accelerated deferred payment if a change in control occurred in IOOF. A change in control was defined to include “a person and that person’s Associates [as defined in the Corporations Act] together [becoming] entitled to more than 40% of 
the voting shares in IOOF….” 

Subsequently IOOF acquired Australian Wealth Management Ltd (AWM) through an all scrip scheme of arrangement in what was effectively a reverse takeover as AWM shareholders would in aggregate hold 70% of the merged entity following implementation. The AWM shareholders who voted in favour of the scheme became entitled to approximately 48% of the voting shares in the enlarged IOOF (Voting Shareholders). Prior to the implementation of the scheme, AWM itself owned 2.14% of the shares in IOOF. 


AWM and Voting Shareholders not associates

The Court of Appeal unanimously dismissed the appeal by finding that AWM and the Voting Shareholders were not associates and consequently, a change of control in IOOF had not occurred. 

The Court found that AWM and the Voting Shareholders had not entered into the scheme for the purpose of controlling or influencing the composition of IOOF’s board or the conduct of IOOF’s affairs. Rather, the purpose of the scheme


  • For AWM, to “transfer its members’ shares to IOOF for the Scheme Consideration”.
  • For the Voting Shareholders, to act in “what they perceived as their self interest, as recommended by their directors and the independent expert” to acquire shares in IOOF in lieu of the shares they held in AWM.


The Court also found that AWM and the Voting Shareholders had not acted in concert in relation to the affairs of IOOF or the acquisition of shares in IOOF. In this context, the Court found there was no communication of voting intentions by any of the Voting Shareholders to AWM in advance of their vote being cast at the scheme meeting. 


The Court noted that it did not agree with a statement by the Takeovers Panel, relied on at first instance, that an agreement to control the conduct of a company’s affairs “must be aimed at exerting pervasive control or influence over the company’s direction and management”.


The Court also commented, in passing, that AWM and IOOF were acting in concert – even though AWM and its members were not – referring to the conduct AWM was bound to engage in pursuant to the Implementation Deed. This aspect of the decision could give rise to complications in some cases. It is not currently market practice to treat implementation agreements as giving rise to association.



  • The decision confirms the well understood position that shareholders who vote in favour of a resolution are not necessarily “associates”. Something more is required. 
  • However, the decision may give rise to some concerns due to its rejection of the Panel’s comments and suggestion that implementation agreements may give rise to association.
  • Reverse takeovers do not automatically result in a change of control of the bidder where target shareholders emerge with more than 50% of the bidder. In order to demonstrate a change of control, there needs to be a block of target shareholders who are acting in concert or have an agreement, arrangement or understanding to control the bidder.
  • When structuring any reverse takeover, regard needs to be had to ASIC’s guidance that where a target shareholder (and its associates) will obtain more than 20% of the voting power in the bidder pursuant to a scheme, ASIC should be consulted at an early stage.



For further information, please contact:


Murray Wheater, Partner, Ashurst

[email protected]


Anton Harris, Ashurst

[email protected]


Ashurst Corporate/M&A Practice Profile in Australia


Homegrown Corporate/M&A Law Firms in Australia



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