Scheme of Arrangement Approved in NSWSC

In a scheme of arrangement case, the Court approved the arrangement after confirming that the statutory requirements were met and the scheme was fair and reasonable. The Court considered the voting participation rate, the absence of objections, and the lack of procedural irregularities that caused substantial injustice.

Supreme Court New South Wales

Medium Neutral Citation: In the matter of [COMPANY] [2021] NSWSC 1708 Hearing dates: 14 December 2021 Date of orders: 14 December 2021 Decision date: 29 December 2021 Jurisdiction: Equity - Corporations List Before: Black J Decision: Orders made approving the scheme of arrangement. Catchwords: CORPORATIONS – Arrangements and reconstructions – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders approving scheme of arrangement – Where formal requirements satisfied – Whether scheme of arrangement should be approved. Legislation Cited: - Corporations Act 2001 (Cth), s 411 Cases Cited: - Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 - [COMPANY] (No 2) [2016] FCA 481 - [COMPANY] (No 2) [2021] FCA 972 - Re Aveo Group Ltd [2019] NSWSC 1679 - Re Central Pacific Minerals NL [2002] FCA 239 - [COMPANY] (2004) 49 ACSR 692; [2004] WASC 143 - Re [NAME] [2021] NSWSC 1476 - Re Isentia Group Ltd [2021] NSWSC 1069 - [COMPANY] (1998) 28 ACSR 268 - [COMPANY] (No 2) (2000) 156 FLR 412; (2000) 34 ACSR 261; [2000] NSWSC 408 - Re [COMPANY] (2002) 43 ACSR 601; [2002] NSWSC 1177 - [COMPANY] (No 2) [2021] FCA 422 - [COMPANY] and [COMPANY] (as the responsible entity for the [COMPANY]) [2012] NSWSC 486 - [COMPANY] (No 3) (2010) 77 ACSR 701; [2010] FCA 400 - [COMPANY] (2004) 50 ACSR 113; [2004] FCA 1049 - [COMPANY] (No 2) [2015] VSC 236 - [COMPANY] (No 2) [2014] FCA 833 - Re WPP AUNZ Ltd [2021] NSWSC 520 Category: Principal judgment Parties: [COMPANY] (Plaintiff) Representation: Counsel: [redacted]

Solicitors: [redacted] File Number(s): 2021/295803

Judgment

Background and affidavit evidence 1. By my judgment delivered on 4 November 2021 (Re [NAME] [2021] NSWSC 1476), I made orders under s 411 of the Corporations Act 2001 (Cth) that the Plaintiff, [NAME] ("[NAME]") it convene a meeting of its members to consider and vote upon a proposed scheme of arrangement and consequential orders. As I noted in that judgment, the [NAME] companies ("[NAME]") are presently a stapled group, the securities in which comprise one fully paid ordinary share in [NAME] and one fully paid ordinary share in an associated entity, [NAME] ("[NAME]"). [NAME] is a fund manager which invests in real asset strategies on behalf of individuals, large institutions and superannuation funds, and is the responsible entity of the [NAME] which focuses on convenience wealth retail and the [NAME] which focuses on healthcare. It owns, develops and manages a property portfolio and also invests in and manages property funds. At the second Court hearing on 14 December 2021, [NAME] sought an order under s 411(4)(b) of the Corporations Act that the scheme be approved. I made the orders sought at the conclusion of the hearing. These are my reasons for doing so. 2. [NAME] reads the affidavit dated 10 December 2021 of [NAME], a solicitor acting for [NAME] in the proceedings. [NAME] refers to the provision of the shareholder booklet to the Australian Securities and Investments Commission ("ASIC") and its subsequent dispatch to shareholders in [NAME], the advertisement of the Court hearing and the absence of any notice of objection of [NAME] shareholders. By a second affidavit dated 14 December 2021, [NAME] confirmed the absence of notice from any party wishing to appear at the hearing in relation to the second Court hearing. No shareholder appeared at the second Court hearing to oppose approval of the scheme. 3. [NAME] also reads the affidavit dated 13 December 2021 of Mr [NAME], a non-executive director of [NAME], who acted as chair of the scheme meeting and subsequent meetings held on 10 December 2021, including an extraordinary general meeting of [NAME] in relation to associated destapling and share consolidation resolutions and an extraordinary general meeting of [NAME] in relation to the destapling. [NAME] exhibits copies of slides presented at the virtual scheme meeting and outlined the contents of his address to the meeting, and refers to the conduct of the scheme meeting. The requisite resolutions were passed by substantial proportions of the number of votes cast and the number of shareholders voting, exceeding the statutory requirements. [NAME] also refers to the announcement of the results of those meetings to Australian Securities Exchange on 10 December 2021.

4. By his affidavit dated 13 December 2021, [NAME], who is a senior client manager employed by [COMPANY] addresses the process undertaken for the dispatch of the shareholder booklet and associated documents including "Email Shareholders", "Postcard Shareholders" and "Postal Shareholders" (as defined), the receipt of proxy forms for the scheme meeting and the number of votes cast by proxy at the scheme meeting. [NAME] also addresses the conduct of the scheme meeting and the results of the poll, to which I have referred above. [NAME] notes that the voting participation rate, which was relatively high by number of shares and low by number of shareholders in respect of [NAME], was nonetheless higher or comparable with the voting participation rate by number of shares at [NAME]'s last two annual general meetings, both by number of shares and number of shareholders. 5. [NAME] also tendered condition precedent certificates executed by [NAME] on 14 September 2021 and a letter dated 13 December 2021 from ASIC indicating that it had no objection to the proposed scheme under Part 5.1 of the Corporations Act.

Submissions and determination 1. I have drawn on the helpful submissions of [NAME], who appears for [NAME], and my judgments in Re Isentia Group Ltd [2021] NSWSC 1069 for the summary of the applicable principles which follows. Section 411(4) of the Act provides that an arrangement is binding on [NAME] shareholders and [NAME] only if, at a meeting of [NAME] shareholders, it is passed by a majority of the shareholders present and voting and by 75% of votes cast and it is approved by order of the Court. Section 411(6) of the Act provides that the Court may grant approval subject to such alterations or conditions as it thinks just. 2. [NAME] must satisfy the Court at the second Court hearing that the resolutions have been passed in accordance with the statutory requirements and the procedural requirements have been satisfied. Where those matters are established, the Court has a supervisory discretion and will consider whether the scheme involves oppression and whether the arrangement is capable of being accepted: Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 247. In deciding whether to give approval to the scheme, the Court will typically wish to be satisfied that the Court's orders convening the shareholders meeting were complied with; that meeting has approved the scheme with the requisite majority; all other statutory requirements have been satisfied; the scheme is fair and reasonable so that an intelligent and honest man or woman who was a member of the relevant class, properly informed and acting alone, might approve it; the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; and there was full and fair disclosure to members of all information material to the decision whether to vote for or against the applicable scheme: Re Central Pacific Minerals NL [2002] FCA 239 at [8]-[14]; Re [COMPANY] (2002) 43 ACSR 601; [2002] NSWSC 1177 at [8]-[10]; [COMPANY] (2004) 50 ACSR 113; [2004] FCA 1049 at [18]-[24]; [COMPANY] (No 3) (2010) 77 ACSR 701; [2010] FCA 400 at [35]-[39]; [COMPANY] and [COMPANY] (as the responsible entity for the [COMPANY]) [2012] NSWSC 486 at [7]; Re Aveo Group Ltd [2019] NSWSC 1679 at [15]. 3. [ADDRESS] will have regard to the assessment by members of their interests as manifested in the voting at the meeting, and is not bound to approve a scheme merely because it has previously made orders for the convening of meeting of the members and the statutory majorities have been achieved: Re Central Pacific Minerals NL above at [12]; [COMPANY] (No 2) (2000) 156 FLR 412; (2000) 34 ACSR 261; [2000] NSWSC 408 at [22]; [COMPANY] (No 2) [2016] FCA 481 at [5]; [COMPANY] and [COMPANY] (as the responsible entity for the [COMPANY]) above at [7]; Re Aveo Group Ltd above at [15]. . 4. [NAME] notes that [NAME] complied with the Court's orders in respect of the dispatch of the shareholder booklet and other documents, other than in respect of one matter. An error occurred in the dispatch process in relation to [NAME] shareholders who had made no election as to how to receive communications and, for 36 of these shareholders, [NAME] mistakenly sent them a letter to the postal address recorded in the shareholder register, rather than sending them an email, because [NAME] followed its usual practice in relation to despatching documents in hard copy to shareholders that had the relevant designation rather than the process contemplated by the Court's orders as proposed by [NAME]. [NAME] submits and I accept that this matter constitutes a procedural irregularity which has not caused any substantial injustice within the meaning of s 1322(2) of the Act and is automatically where no order to the contrary was sought.

5. The scheme meeting was held on 10 December 2021, preceded by [NAME]'s AGM, and [NAME] shareholders were able to attend and participate in the scheme meeting by logging into the online meeting platform, although only three shareholders (who held 70,502 [NAME] shares in aggregate) chose to participated in the scheme meeting by logging in to that platform rather than lodging proxies. The statutory majorities voted in favour of the scheme.

6. Although the number of shareholders attending the meeting, virtually or by proxy was relatively low, the Court would not assume (in the absence of complaint) that that reflected any error in the dispatch of the notice of the meeting or the shareholder booklet and a relatively low shareholder turnout in number does not prevent the court from making orders approving a scheme of arrangement: [COMPANY] (1998) 28 ACSR 268 at 295; [COMPANY] (No 2) [2014] FCA 833 at [10]-[11]; Re WPP AUNZ Ltd [2021] NSWSC 520 at [9]; [COMPANY] (No 2) [2021] FCA 422 at [1] and [3]. [NAME] submits, and I accept, that the low voter turnout, by comparison with the total number of eligible voting shareholders, does not here indicate that members were deterred from attending or voting at the meeting or otherwise provide any reason that would prevent the Court making orders approving the scheme, where a large number of shareholders hold a relatively small parcel of shares, and, conversely, some 55 shareholders hold nearly 90% of [NAME]'s issued shares, so that the scheme may be acceptable to holders of smaller parcels without their taking the trouble to vote upon it: Re AuStar Gold Limited (No 2) [2021] FCA 972 at [4(c)]. [NAME] also points out that that is more likely where, as I noted in my earlier judgment (Re [COMPANY] above at [14]), the scheme does not change the economic interests of the [NAME] shareholders, and the voter turnout numbers at the scheme meeting was also broadly comparable with the turnout for [NAME]'s 2020 and 2021 annual general meetings. 7. [NAME] submits that the Court should conclude that the scheme is fair and reasonable, where it has been overwhelmingly supported by the [NAME] shareholders who attended the scheme meeting and who voted on the scheme; the transaction contemplated by the scheme does not result in any change in the economic interest of [NAME]'s shareholders; there is nothing to suggest that the [NAME] shareholders who voted in favour of the scheme have acted other than in good faith or in pursuit of any illegitimate purpose; the scheme is not obviously unfair or otherwise inappropriate and no class of shareholder would be materially disadvantaged by the scheme; no one has opposed the scheme and ASIC has not raised any objection to it.

8. I am satisfied that the affidavit evidence establishes that the Court's orders in respect of the dispatch of the scheme booklet, subject to the irregularity noted above, and the scheme meeting were complied with. As I noted above, the scheme was approved by the requisite majorities of votes cast and by number of [NAME] shareholders present at the scheme meeting. There is no reason to doubt that [NAME] has brought to the Court's attention all matters that could be considered relevant to the exercise of the Court's discretion, or to doubt that there was full and fair disclosure to members of information material to the decision whether to vote for or against the applicable scheme. The factual information contained in the scheme booklet was verified in the usual way and the scheme booklet otherwise satisfies the relevant statutory requirements. No [NAME] shareholder or other person indicated a wish to appear or appeared at the second Court hearing to object to the scheme; [NAME] tendered certificates indicating that the relevant conditions precedent have been satisfied or waived, other than the conditions relating to Court approval of the scheme; and, and, as I noted above, ASIC has no objection to the scheme stated pursuant to s 411(17)(b) of the Act.

9. I am also satisfied that the Court should also make an order exempting [NAME] from compliance with s 411(11) of the Act, where the scheme will not modify any rights of shareholders or of creditors or of persons dealing with [NAME]: [COMPANY] (2004) 49 ACSR 692; [2004] WASC 143 at [22]; [COMPANY] (No 2) [2015] VSC 236 at [18]–[19].

Orders 1. For these reasons, I made the orders sought by [NAME] at the conclusion of the second Court hearing in respect of the scheme.

********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 December 2021