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Pursuant to section 674(2) of the new Companies Ordinance, the "headcount test" in a scheme of arrangement that involves a general offer or a takeover offer is replaced with the requirement that the votes cast against the scheme do not exceed 10% of the voting rights attached to all disinterested shares. A dissenting member may be ordered to pay legal costs under section 676(5) of the new Companies Ordinance only if his opposition to the scheme is frivolous or vexatious.
The new test that replaces the "headcount test" is based on the rationale of the 10% objection rule of the Code on Takeovers and Mergers issued by the Securities and Futures Commission. It upholds the "one share, one vote" principle whilst at the same time provides an added safeguard to protect minority shareholders' interests.
The headcount test is retained for creditors' schemes and members' schemes that do not involve a general offer or takeover offer. Pursuant to sections 674(1)(c)(ii) and (1)(d)(ii) of the new Companies Ordinance, the Court is given a new discretion to dispense with the test for a members' scheme that retains the test. It is anticipated that the Court may exercise the discretion to dispense with the test in circumstances where there is evidence that the result of the vote has been unfairly influenced by share splitting.
