AN EXPERT committee has called for reforms that could curtail the potential voting power of small shareholders, as part of a broader look at the use of schemes of arrangement in corporate Australia.
The Government's Corporations and Markets Advisory Committee yesterday released a report examining members' schemes of arrangement, a mechanism - often used in non-hostile takeovers - for shareholders to vote on structural change.
CAMAC said there should be a requirement for ''clear, concise and effective'' scheme documents, and that managed investment schemes should be subject to schemes of arrangement.
Most notably, it called for the dumping of a headcount vote applying to schemes of arrangement. At present, schemes require approval by 75 per cent of the shares voted - as opposed to the shares on issue - plus the approval of a majority of shareholders who vote on the scheme, the so-called ''headcount''.
In takeover bids, by contrast, a bidder must acquire 90 per cent of all shares on issue before moving to compulsory acquisition.
In explaining its decision on the headcount, CAMAC said other ''fundamental corporate matters'' were already decided on the basis of shares voted. It acknowledged concerns that the change could reduce small shareholders' influence, but said a ''contrary view'' was that the headcount test could give them ''disproportionate power''.
It said small shareholders were protected by other measures, such as the court's discretion to block unfair schemes, the duty of company directors to act in shareholders' best interests, and the requirement for an independent expert report on the scheme's merits. The proposed removal of the headcount was applauded by Freehills partner Tony Damian, who said the vote was ''anachronistic'' and prone to share splitting by parties seeking to increase their influence on the vote.
The Australian Shareholders Association was in favour of removing the headcount ''from a pragmatic point of view'', said policy and research manager Claire Doherty. ''There are a limited number of small shareholders who vote in schemes,'' she said.
But in a submission to CAMAC, proxy adviser RiskMetrics argued against dumping the headcount, saying it had never defeated a scheme approved by a majority of voted shares. CAMAC acknowledged this, but said there was anecdotal evidence that plans for schemes had been abandoned because of the possibility of an adverse headcount vote.
According to figures quoted by CAMAC, an average of 62 per cent of shares were voted on schemes in the past 10 years, but only 22 per cent of shareholders voted. In the 18 months to June, listed companies were subject to 78 takeover bids and 58 members' schemes.
A spokesman for Corporate Law Minister Chris Bowen said: ''The Government will be considering CAMAC's recommendations and will respond in due course.''
