Scheme of Arrangement Minority Squeeze-Out Threshold
The Formal Definition
A court-approved statutory takeover mechanism under UK and Commonwealth company law that binds 100% of target shareholders to a buyout once approved by a majority in number representing at least 75% in value of the shareholders present and voting, completely bypassing the higher 90% threshold required in standard contractual tender offers.
$$\text{Statutory Approval Condition: } \ge 75\% \text{ Value of Shares Voted} \cap > 50\% \text{ Headcount of Voting Shareholders}$$
Cole Barrett's Reality Check
The Unvarnished Bottom Line"A Scheme of Arrangement is how acquirers bypass minority holdouts. In a traditional takeover offer, you need 90% of all outstanding shares to squeeze out the remaining 10%. With a Scheme, you only need 75% of the shares that actually turn up to vote, plus a simple majority in headcount. If retail shareholders don't send in their proxies, an acquirer can seize 100% of the company with less than half the total shares on the register."
Interactive Simulator: Test the Math
Real-World Example: Scenario Breakdown
Examining the real numbers for: An acquirer targeting 100% ownership of a UK-listed mid-cap company via a Part 26 Scheme of Arrangement
| Execution Metric | Scheme Arbitrage Fund | Passive Non-Voting Retail Shareholder |
|---|---|---|
| Fee / Rate | Institutional placement rate | £9.95 legacy bank fee |
| Spread / Buffer | Calculated low retail voter turnout; bought voting shares to build an 18% voting block at the court meeting | Held 5,000 shares; ignored the corporate action proxy packet assuming their 90% tender rights protected them |
| Execution / Status | Only 60% of total shares turned up to vote; fund's 18% stake represented 30% of the active voting pool | Scheme passed with 76% of voted shares; court sanctioned the scheme and cancelled all minority equity |
| Total Cost / Result | Monetized minority blocking power by analyzing low turnout | Squeezed out involuntarily under low-turnover scheme approval |
How Brokers Weaponize This Term
When a foreign corporation in your portfolio announces an acquisition via a Scheme of Arrangement rather than a standard tender offer, audit the voter turnout history. Because the 75% threshold applies only to shares *voted* rather than shares *outstanding*, low voter participation grants institutional activist funds outsized leverage to approve or block the deal.
Broker Evaluation Matrix
Cole Approves
Interactive Brokers: Provides institutional corporate actions tracking with electronic proxy voting across UK, European, and Commonwealth restructuring schemes.
Read Audit →Cole Flags / Avoids
Discount App Platforms: Frequently fails to deliver foreign scheme proxy voting materials to retail clients, forfeiting shareholder voting rights by default.
View Trap Details →Frequently Asked Questions
What is the 'headcount test' in a Scheme of Arrangement?
The headcount test requires that a numerical majority of individual shareholders present and voting (more than 50% of people in the room/voting) must approve the scheme, regardless of how many shares each person owns.
Why do bidders prefer a Scheme over a standard takeover offer?
Because once sanctioned by the court, a Scheme gives the bidder 100% of the target company immediately, eliminating messy minority holdouts and litigation.