Hitting new peaks: recent developments in schemes of arrangement
Ahead of the deal - Australian M&A Briefing
Key insights
- The Panel broadens its footprint on schemes: The Takeovers Panel's recent declarations and orders in the Mayne Pharma and Humm matters demonstrate an increasing willingness for the Panel to intervene in schemes of arrangement, in parallel with Court supervision.
- Courts clearing the path for schemes: So far in 2026, the Courts have considered a multitude of issues with scheme mechanics and structures. These include a proposed condition subsequent, contingent consideration structures and a 'naked no vote' break fee. Generally, the Courts have been willing to take a pragmatic approach to relevant issues clearing the path for schemes to ascend to their commercial summit.
- Independent experts in ASIC's sights: ASIC has written to independent expert licensees reinforcing expectations for the preparation of independent expert reports and "to address fundamental concerns about report clarity, rigour and transparency". ASIC continues to remain focused on compliance issues for expert reports following recent enforcement actions.
The Panel broadens its footprint on schemes
The end of 2025 and start of 2026 have seen the Takeovers Panel hear some interesting matters regarding schemes of arrangement. While the Panel has always had jurisdiction over schemes, given the Court's role in those transactions, its involvement has sensibly been less frequent compared to takeover bids and other control issues. The recent Mayne Pharma and Humm proceedings show that the Panel is prepared to take an increasingly active role in schemes and use its broad powers to make a wide variety of orders where it considers the effect on control is unacceptable.
Many will be familiar with the circumstances surrounding the recent Mayne Pharma / Cosette scheme which was ultimately terminated. As discussed in the article, No easy exit: Key takeaways from the Cosette / Mayne Pharma decision, in October 2025, the New South Wales Supreme Court held that the material adverse change (MAC) clause in the Mayne Pharma scheme implementation deed had not been triggered as alleged by Cosette. However, the scheme was also subject to FIRB approval.
In the scheme booklet, Cosette had stated, amongst other things, that:
“If the Scheme is implemented, the Cosette Group’s current intention is to continue the business and operations of Mayne Pharma largely in the same manner as it is currently operated and to investigate opportunities to integrate and grow Mayne Pharma’s business (which may include further investment flowing to Mayne Pharma).”
Nevertheless, after Cosette served purported termination notices on Mayne Pharma alleging a MAC had occurred (and importantly also after the scheme shareholder vote), Cosette advised FIRB it intended to dispose of or close Mayne Pharma's South Australian manufacturing site.
Having applied to the Court in relation to the MAC, Mayne Pharma applied to the Panel in respect of Cosette's proposed re-evaluation of its intentions in relation to the site. The Panel first made interim orders and then declared unacceptable circumstances, finding that Cosette's change of intentions meant that "the market for control of Mayne Pharma is not proceeding in a manner generally expected for schemes and is contrary to an efficient, competitive and informed market". The Panel said that "it was at least foreseeable" to Cosette that its change of intentions in relation to the relevant site put the prospects of receiving FIRB approval at risk. As the Panel noted:
"Put another way, as a result of the stated change of intentions the likelihood of the transaction proceeding was diminished in a way that would not have been reasonably expected by the market based on the disclosure in the Scheme Booklet."
The final orders required Cosette to agree to any conditions reasonably required by the Treasurer in connection with the South Australian site that were not inconsistent with Cosette's intentions disclosed in the scheme booklet. The Panel also ordered disclosure of all FIRB communications between the parties and an extension of the scheme sunset date.
The scheme was ultimately blocked by the Treasurer, with the Treasurer noting conditions could not be put in place to mitigate national interest risks. The decision illustrates how the Panel can intervene even once a scheme has progressed to Court, and can quickly make orders that require a bidder to act consistently with previous public statements of intentions, in parallel with the Court's supervision of schemes. In other words, bidders' stated intentions in scheme booklets carry regulatory weight throughout the life of a transaction, no different to other public intention statements.
The current Humm Panel proceedings also illustrate the Panel's preparedness to make a wide variety of orders in a scheme context. In that matter, the Panel recently made a declaration of unacceptable circumstances regarding Credit Corp's proposal for Humm. This followed interim orders made by the Panel, and the acceptance of undertakings from Humm in relation to the proposal. The Humm proceedings remain ongoing.
From the bench: clearing the path for schemes
So far in 2026, the Courts have also been active across a multitude of issues. A number of recent decisions indicate that Courts have been willing to take a pragmatic approach to relevant issues clearing the path for schemes to ascend to their commercial summit.
Switching course: conditions precedent to conditions subsequent
In the recent Global Uranium and Enrichment Ltd scheme, Justice Vandogen of the Federal Court of Australia approved alterations to the scheme at the second Court hearing converting a condition precedent into a condition subsequent.
The original condition precedent required that new shares to be issued by the bidder, Snow Lake, as consideration under the scheme be approved for listing and trading on Nasdaq before the second Court hearing. However, after the scheme meeting, it became apparent that Nasdaq's process was a notification (not an approval) process, and that Nasdaq would only review the transaction after the scheme became effective (but before issue of the new shares). This meant that the relevant condition precedent could not be satisfied and the parties would not have formal confirmation of the satisfaction of Nasdaq's share issue notification processes until after Court approval had been obtained.
The Court accepted the proposed alteration to the scheme, noting that the new condition subsequent would not cause the scheme to become unclear or uncertain. This was because it simply required the bidder to have provided Nasdaq with all necessary information as required by its notification process, and that on the implementation date there was nothing from Nasdaq to indicate that the new bidder shares would not be listed and quoted. Ultimately, the Court was satisfied that the proposed alterations to the scheme would bring about the outcome that was originally intended, being that the new Snow Lake shares would be listed and quoted on Nasdaq when issued.
To our knowledge, this is the first instance of a Court approving the conversion of a condition precedent to a condition subsequent after the scheme meeting without prior notice to shareholders of the specific alterations. In earlier examples, such as the Afterpay and Redflex schemes, the conversion occurred (or was announced) before the meeting allowing shareholders to vote on the scheme with knowledge of the relevant changes.
In the case, the Court noted this point. However, the judge was satisfied that the resolutions approving the scheme were passed on the basis that the target board was authorised to agree to alterations or conditions as thought fit by the Court and consented to by the parties. Noting that the amendments to the scheme made no material change to the character of the scheme (and were in fact necessary for the scheme to even proceed), the decision is a useful illustration of the Court's important power to amend the scheme after the scheme meeting in relevant circumstances.
Contingent consideration: how contingent is too contingent?
Justice Black of the New South Wales Supreme Court recently made orders convening the scheme meeting for a proposed scheme in relation to an unlisted company which involves a contingent earn-out consideration structure. Under Helsing SE's proposed acquisition of Blue Ocean Monitoring Limited, the base consideration is $3.00 per share, but up to an additional $0.80 per share is payable on entry into a specified 'Scoping Contract' before 30 June 2027, and up to a further $3.20 per share on a specified 'Delivery Contract' before 30 September 2028. This means that total consideration received by target shareholders could be more than double the base consideration amount.
At the first Court hearing, the Court accepted that the contingent element does not of itself weigh against approval of convening the scheme meeting where it is sufficiently disclosed to shareholders. Justice Black also noted that the case for approval was made stronger by the fact that the independent expert had opined that the base consideration (i.e. the scheme consideration excluding the contingent consideration) was fair and reasonable and therefore in the best interests of shareholders.
The target submitted that the earn-out consideration did not constitute a debenture (which would mean the requirements in Chapter 2L of the Corporations Act would apply, including the need for a trust deed), given that there was no presently existing debt. This was on the basis that no member of the Helsing group had presently entered into the Scoping Contract or the Delivery Contract. While Justice Black stated that he did "not consider it necessary or appropriate to express a concluded view as to that matter in the absence of a contradictor", he described the target's submissions on the point as having "considerable force".
Similar issues regarding contingent consideration have also arisen in the proposed acquisition of Cannatrek Ltd (another unlisted company) by Little Green Pharma Ltd (listed on the ASX), where scheme shareholders are to receive new convertible and redeemable preference shares in the bidder. The relevant shares are convertible based on a contingent amount (being the difference between certain liabilities of each party) on the second anniversary of the implementation date for the scheme. At the recent first Court hearing, Justice Neskovcin said that the contingent and deferred nature of the scheme consideration was sufficiently disclosed in the scheme booklet and noted the independent expert had concluded that the value of the non-contingent consideration is within the expert's range for the scheme. The judge accordingly made orders convening the scheme meeting.
'Naked no vote' break fees: useful judicial guidance
In relation to deal protection devices, Justice Beach of the Federal Court of Australia recently made orders convening a scheme meeting in the Ausmincon scheme where a 'naked no vote' break fee may be payable. A 'naked no vote' break fee is a fee payable to the bidder by the target if its shareholders do not approve the scheme, even if there is no competing proposal. In the Ausmincon matter, the break fee is $1 million, representing just over 1% of Ausmincon's equity value.
Relevantly, the bidder, Afry AB, had originally sought to acquire the target business by way of a private M&A transaction. However, in negotiations, the target board required the transaction to proceed via a scheme of arrangement which the bidder ultimately accepted on the basis that the break fee had a 'naked no vote' trigger. As Justice Beach noted, the 'naked no vote' break fee was "the price of buying the opportunity to put Afry's proposal to the AHL shareholders".
The case provides useful additional guidance on 'naked no vote' break fees, which the Takeovers Panel notes in its Guidance Note 7 may be unacceptable even if within the Panel's 1% of equity value guidelines. Justice Beach held that the 'naked no vote break fee' was not an impediment to making orders convening the scheme meeting, and helpfully noted the following principles:
a.' Naked no vote' break fees are not necessarily coercive.
b. A 'naked no vote' break fee does not need to be de minimis in amount provided it is not so large as to be coercive.
Relevant matters to consider here include whether the fee is a genuine pre-estimate of the bidder's costs, whether the fee is essentially the price of buying the opportunity for the target's shareholders, whether the target board formed the view that there was a high probability that shareholders would accept the offer at the price proposed, whether the fee could easily be funded from the target's existing cash reserves and otherwise the factors set out in Takeovers Panel Guidance Note 7 (to which the Panel will have regard in determining whether a break fee may give rise to unacceptable circumstances).
c. The absence of a reciprocal 'naked no vote' break fee does not mean a 'naked no vote' break fee is unfair.
The judge noted that the bidder had already incurred costs in excess of $1 million (i.e. the fee appeared to be a genuine pre-estimate of costs); the target held cash reserves in excess of $9 million (i.e. shareholders would not feel compelled to vote in favour simply to protect its balance sheet) and the target board considered that shareholders would likely approve the scheme (i.e. the risk of the fee being triggered was low).
From ASIC: independent experts in sight
Finally, ASIC's latest Corporate Finance Update includes a useful reminder of ASIC's expectations of independent experts. Following a review of a broad range of independent expert reports, ASIC has written to experts to address what it describes as "fundamental concerns about report clarity, rigour and transparency", reminding licensees of their role as "financial system gatekeepers" and setting out expectations around the justification of valuation methodologies, disclosure of material assumptions and critical assessment of specialist reports.
This is consistent with ASIC's recent focus on issues around independent expert reports and its willingness to take enforcement action. Of note is that, in mid-2024, ASIC accepted:
- a court enforceable undertaking from PKF in relation to the management of conflicts of interest requiring PKF to cease providing independent expert reports until an independent review of PKF's policies and procedures was completed and recommendations implemented; and
- a voluntary licence variation from AP Lloyds excluding it from providing advice as an independent expert in connection with ASIC concerns around compliance with ASIC's policy guidance.
