Alstom Signalling Solutions Pty Ltd, in the matter of Alstom Signalling Solutions Pty Ltd v Alstom Transport Australia Pty Limited

Federal Court of Australia|2022-08-11|Before: Halley J

ORDERS NSD 575 of 2022 IN THE MATTER OF ABSOLUTE EQUITY PERFORMANCE FUND LIMITED ABSOLUTE EQUITY PERFORMANCE FUND LIMITED Plaintiff

order made by: HALLEY J DATE OF ORDER: 11 August 2022

Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth) (Act): (a) the Plaintiff, Absolute Equity Performance Fund Limited (ACN 608 552 496) (AEG), convene a meeting of its shareholders (Scheme Meeting) for the purpose of considering and, if thought fit, agreeing to (with or without modification) a scheme of arrangement proposed to be entered into between AEG and its shareholders (Scheme), on the terms contained in Annexure B to the explanatory statement (Scheme Booklet) at Annexure SNJ-5 to the affidavit of Ms Saxon Naulls-Johnstone affirmed 11 August 2022; (b) the Scheme Meeting be held as a hybrid meeting at 11.00 am (Sydney time) on 15 September 2022; (c) Mr Marc Michael Fisher or, failing him, Mr David William Harrison, be Chairperson of the Scheme Meeting; and (d) the Chairperson of the Scheme Meeting shall have the power to adjourn the Scheme Meeting at his absolute discretion.

Introduction 1 By an originating process filed on 29 July 2022, the plaintiff, Absolute Equity Performance Fund Limited (AEG), applies pursuant to ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (Act) for orders to convene a meeting (Scheme Meeting) of its members to consider and vote upon the proposed scheme of arrangement (Scheme) between AEG and its shareholders (Scheme Participants). 2 The Scheme, if approved and implemented, will result in the acquisition of all the shares in AEG by WAM Leaders Limited (WLE), whereby Scheme Participants will receive new WLE shares (New WLE Shares) as consideration for their AEG shares (Scheme Consideration). 3 The number of New WLE Shares to be offered for each AEG share will be determined by a formula based on the ratio of the net tangible assets (NTA) of WLA before tax (pre-tax NTA), to the pre-tax NTA of AEG on the calculation date, currently expected to be 22 September 2022 (Conversion Rate). 4 The commercial rationale for the Scheme, as explained by the board of AEG, is to address the persistent discount to NTA that AEG shares have traded in the past three years (with an average discount to NTA exceeding 10% in the 12 months ending 31 May 2022) and a decrease in the market capitalisation of AEG from $92.6 million as at 31 December 2021 to $77.6 million as at 31 May 2022. 5 The AEG board consider that the Scheme addresses these issues by providing AEG shareholders with first, the ability to exit their investment at a price close to AEG's pre-tax NTA in a timely fashion at an attractive premium over the trading prices of AEG shares prior to the date on which the intention to proceed with the Scheme was announced and second, access to WLE's investment strategy, profit reserves, franking account balance, larger capital and shareholder base with the enhanced scale of the enlarged WLE/AEG group, including a reduced management expense ratio.

Evidence relied upon by AEG 6 The application is supported by an affidavit of Marc Michael Fisher, affirmed on 8 August 2022. Mr Fisher is the chairman and managing director of AEG. In his affidavit, Mr Fisher: (a) explains that AEG is a listed investment company that provides investors with a diversified portfolio of Australian listed equities; (b) annexes copies of the constitution of AEG, its 2021 Annual Report, its half-year report for the year ended 31 December 2021 and a company extract dated 5 August 2022 obtained from the Australian Securities and Investments Commission (ASIC); (c) states that AEG has 90,264,949 fully paid ordinary shares on issue and no other class of shares on issue and AEG currently has 2,011 shareholders; (d) explains that WLE is an investment company that provides investors access to an active investment process and an investment strategy focused on investments in large-cap Australian companies; (e) explains the negotiation of the Scheme Implementation Agreement between AEG and WLE (SIA); (f) explains the rationale for the inclusion in the Scheme of exclusivity provisions and a deed poll executed by WLE; (g) explains the calculation under which the Scheme Participants will be entitled to exchange their AEG shares for the New WLE Shares; (h) explains the due diligence and verification process undertaken by the AEG board for the Scheme; (i) describes the process for the despatch of the Scheme Booklet to shareholders; (j) confirms that he will act as chair of the Scheme Meeting; (k) discloses that he has a relevant interest in 124,083 fully paid ordinary shares in AEG, of which 124,082 are held by Harc International Pty Ltd and one is held by him directly, that he does not hold any shares in WLE and he is not otherwise associated with a shareholder of WLE; and (l) confirms that the AEG board unanimously recommends to shareholders that they vote in favour of the Scheme in the absence of a superior proposal. 7 AEG also relies on an affidavit of David John McCourt, a director of BDO Corporate Finance (East Coast) Pty Ltd, affirmed 4 August 2022, annexing his independent expert's report. Mr McCourt has concluded in his report that the Scheme is fair and reasonable and therefore in the best interests of AEG shareholders. Mr McCourt is a chartered accountant and has a Graduate Diploma of Applied Finance & Investment and a Bachelor of Business (Finance & Accounting). Mr McCourt has more than 20 years' experience in specialist corporate advisory capacities including company valuations, financial modelling, preparation and review of business feasibility studies, accounting, advising on mergers and acquisitions and advising on independent expert reports. I am satisfied that he has the appropriate experience and qualifications to express an opinion on whether the Scheme is fair and reasonable and therefore in the best interests of AEG shareholders. 8 In addition, AEG relies on the following affidavits: (a) two affidavits of Saxon Barbara Naulls-Johnstone, a director of Mont Lawyers Pty Ltd (the solicitors acting for AEG in the Scheme) (Mont Lawyers), affirmed 28 and 29 July 2022, annexing a company extract for AEG obtained from ASIC and a receipt from ASIC recording lodgement of the draft Scheme Booklet in the first affidavit, and annexing communications with ASIC and a receipt from ASIC recording lodgement of the originating process and supporting affidavit; (b) an affidavit of David William Harrison, a non-executive director of AEG, affirmed 5 August 2022, stating that he has been nominated as the alternate chairperson for the Scheme Meeting, and disclosing that he is a director and shareholder of consulting company Harrison & Co Legal Consulting (Asia-Pacific) Pty Ltd, which has provided consultancy services to AEG and is expecting consultancy fees payable in respect of services provided in relation to the Scheme of approximately $110,000 (excluding GST); (c) an affidavit of Harry Michael Forsythe, a lawyer at Mont Lawyers, sworn 8 August 2022, evidencing communications between himself and the board of AEG; (d) an affidavit of Jesse Michael Hamilton, joint company secretary of WLE, sworn on 8 August 2022, giving evidence regarding the details of the SIA and the process of including information in the Scheme Booklet regarding WLE; and (e) an affidavit of Michael George Beaumont, a director of Mont Lawyers, affirmed 10 August 2022, annexing communications with ASIC and the usual first court hearing letter from ASIC dated 9 August 2022. 9 AEG also tendered at the first court hearing a copy of the scheme booklet for the Antipodes Global Investment Company Limited scheme of arrangement. In the absence of any evidentiary context to the scheme booklet and scheme of arrangement, I have not been able to place any weight on the scheme booklet in determining whether the orders sought by AEG at the first court hearing should be made. 10 On the day after the first court hearing, AEG filed an affidavit of Saxon Barbara Naulls-Johnstone, affirmed on 11 August 2022 (Naulls-Johnstone affidavit), annexing a revised Scheme Booklet. The revised Scheme Booklet seeks to address disclosure concerns that I raised in the course of the first court hearing, in particular the explanations of the transition plan agreed between AEG and WLE, the final dividend position for WLE for the most recent financial year, a potential compensation claim by the existing AEG investment manager, the availability of historical tax losses of AEG and the determination of the date on which the Scheme Consideration is to be determined. 11 I am satisfied that the disclosure concerns that I raised have been appropriately addressed in the revised Scheme Booklet. 12 The Naulls-Johnstone affidavit also satisfactorily addresses the concern I raised in the course of the hearing with respect to an inherent ambiguity in the wording of the proposed Scheme resolution. The Scheme resolution initially proposed used the phrase "(with or without any alterations or conditions agreed or any alterations or conditions required by the Court)". The "or without" alternative has now been removed from the proposed Scheme resolution.

Formal requirements to exercise s 411(1) power 13 Section 411(1) of the Act confers a power on the Court to order a meeting of members to be convened and to approve the relevant explanatory statement. 14 As stated by McKerracher J in Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 (Amcom) at [12], the Court should order the convening of the scheme meeting and approve the scheme booklet if it is satisfied of the following matters: (a) the proposed scheme is an arrangement in respect of which the Court may order a meeting of the members: s 411(1) of the Act. That is, the scheme is an arrangement, the company is a Pt 5.1 Body, the scheme participants are members of the company and the scheme meeting will be convened between members of the same class; (b) ASIC has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions to the Court in relation to those matters: s 411(2)(b) of the Act; (c) the scheme booklet provides adequate disclosure (s 412(1)(a)(i) of the Act) and contains the prescribed information: s 412(1)(a)(ii) of the Act, r 5.1.01; sch 8 cll 8301-8310 of the Corporations Regulations 2001 (Cth); (d) the procedural requirements of the Federal Court Rules 2011 (Rules) have been met; and (e) there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes are achieved: Integra Mining Limited, in the matter of Integra Mining Limited [2012] FCA 1414 (Integra Mining) at [12] (McKerracher J), and the cases cited therein. See also Xplore Wealth Limited, in the matter of Xplore Wealth Limited [2020] FCA 1868 at [23] (Markovic J). 15 I am satisfied that the evidence upon which AEG relies is sufficient to establish that: (a) AEG is a Part 5.1 body; (b) the Scheme Participants are members of AEG; (c) the Scheme Meeting will be convened between members of the same class; (d) the Scheme is bona fide and properly proposed; (e) ASIC has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet and make any submissions to the Court; (f) the Scheme Booklet provides adequate disclosure and contains the prescribed information; (g) the procedural requirements of the Rules have been met; and (h) there is no apparent reason why the Scheme should not receive the Court's approval if the necessary majority of votes are achieved. 16 Once the preconditions to the exercise of power under s 411(1) to order the convening of a meeting have been satisfied, it is then necessary to consider whether that power ought to be exercised pursuant to the Court's discretion.

Relevant principles for the exercise of discretion 17 In Dragontail Systems Limited, in the matter of Dragontail Systems Limited [2021] FCA 834, I summarised at [10]-[14] the relevant principles for the exercise of the discretion to order the convening of a meeting to consider approving a proposed scheme of arrangement. For ease of reference, I set out below those paragraphs of that judgment. 18 The Court will not ordinarily make orders for the convening of a scheme meeting unless the scheme is of such a nature and cast on such terms that if it receives the statutory majority at the meeting, the Court would be likely to approve it on the hearing of an application that was not opposed: FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 (Street CJ, with whom Hutley and Samuels JJA agreed); approved in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15 at 504; Re Central Pacific Minerals NL [2002] FCA 239 at [8]; CSR Limited, in the matter of CSR Limited (2010) 183 FCR 358; [2010] FCAFC 34 at [12]. 19 At the first court hearing, the Court exercises its supervisory jurisdiction in order to review the scheme and the explanatory statement and to raise any queries that it might have with the plaintiff: Alstom Signalling Solutions Pty Ltd, in the matter of Alstom Signalling Solutions Pty Ltd v Alstom Transport Australia Pty Limited [2016] FCA 838 at [21] (Gleeson J). The Court needs to be satisfied that there are no obvious flaws in the scheme and that there is an adequate explanation provided to persons who have a financial interest in the proposed scheme: In the matter of Coca-Cola Amatil Limited [2021] NSWSC 270 at [13] (Black J) (Coca-Cola Amatil). 20 The Court should consider at the first court hearing whether the proposed scheme is not inappropriate and whether it is one that sensible business people might consider is of benefit to its members: Australian Leaders Fund Ltd v Equity Trustees Ltd, in the matter of Australian Leaders Fund Ltd [2021] FCA 88 (Leaders Fund) at [15] citing Re Sonodyne International Ltd (1994) 15 ACSR 494 at 499 (Hayne J); Integra Mining at [11] (McKerracher J); and Amcom at [10] (McKerracher J). 21 The Court does not need to be satisfied that no better scheme could have been proposed and ultimately that is a question for the members themselves to determine at the scheme meeting: Associated Advisory Practices Limited, in the matter of Associated Advisory Practices Limited [2013] FCA 761 at [22] (Farrell J); Coca-Cola Amatil at [13]; and Leaders Fund at [15]. 22 Although the second court hearing is when the Court makes its final determination, in practice, the first court hearing is where the Court will typically intervene if it has concerns. A reason that has been advanced for this is that the market views the approval by the Court of the convening of scheme meetings as providing assurance that the scheme, at least in form and substance, has received a preliminary clearance by the Court and that trading in the company's securities thereafter will proceed on that basis: Re Archaean Gold NL (1997) 23 ACSR 143 at 147; and Leaders Fund at [15].

Specific considerations 23 Given the ex parte nature of an application for orders pursuant to s 411(1) of the Act, the following matters were specifically drawn to my attention by Mr Oakes, in the course of his oral and written submissions: (a) provisions in the Scheme document; (b) Scheme Consideration; (c) Ineligible Overseas Shareholders; and (d) shares in AEG held by Wilson Asset Management Group members. 24 For the reasons outlined below, I am satisfied that none of these matters would cause me to decline to convene a meeting in the present case.

Provisions of the Scheme 25 The Scheme is at Annexure B of the Scheme Booklet. 26 The Scheme is subject to the conditions precedent set out in cl 3.1, but subject to usual Court orders and such orders being lodged with ASIC, these need to be satisfied or waived two hours before commencement of the hearing on the Second Court Date, so the Scheme will be self-executing upon the making of the second court hearing orders and registration of those orders with ASIC. 27 WLE is not a party to the Scheme, so an "outsider" needs to be bound in by contract. This is achieved by deed poll in favour of Scheme Participants, which is at Annexure C of the Scheme Booklet. The deed poll enables relevant Scheme Participants to directly enforce the obligation to provide the Scheme Consideration. The deed poll is governed by the law of New South Wales. 28 Clauses 5.4 and 5.5 of the Scheme cover Ineligible Overseas Shareholders. Ineligible Overseas Shareholders will be cashed out rather than receive the Scheme Consideration.

Scheme Consideration 29 The number of WLE shares to be issued as Scheme Consideration will be determined in accordance with Schedule 1 of the Scheme based on WLE and AEG's respective NTA per share value calculated and confirmed in accordance with the SIA. 30 The calculation date used in the Scheme Consideration formula occurs after the second court hearing, on the day the Scheme becomes legally binding (currently expected to be 22 September 2022) (Calculation Date). 31 Pursuant to the terms of the SIA, both AEG and WLE are required to ensure that their respective NTA per share is calculated and delivered to the other within two business days of the Calculation Date, together with sufficient supporting information to permit the other to review the calculation and written confirmation that the NTA calculation has been undertaken in accordance with the SIA and past practice. Each of AEG and WLE is also required to use its reasonable endeavours to ensure that the NTA calculation provided by the other to it is confirmed as soon as possible. In the absence of the provision of written confirmation by 5.00 pm on the second business day of receipt of an NTA calculation, the calculation is to be immediately referred to the auditor of the party who had provided the NTA calculation for confirmation within three days of receipt of the referral. 32 The final Scheme Consideration will be announced on the Australian Securities Exchange (ASX) on the business day before the date on which the Scheme is implemented and the Scheme Consideration is distributed by AEG (currently expected to be 7 October 2022) (Implementation Date). 33 The issue of the calculation of the Scheme Consideration has been the subject of substantial correspondence with ASIC. ASIC requested increased disclosure within the Scheme Booklet and between the first court hearing and the Implementation Date. 34 Mr Oakes SC, who appears for AEG, submits that a commercial problem with listed investment companies (of which AEG is an example) is that they often trade on the ASX at a discount to NTA. He submits that this problem has been dealt with via schemes of arrangement in a number of ways: (a) acquisition by a larger listed investment company which has a critical mass which commercially does not attract a discount to NTA (the present proposal); (b) acquisition by a listed managed investment scheme - this allows investors to cash out at NTA or sell on the ASX if they wish to dispose of their investment; or (c) acquisition by an unlisted management investment scheme - this allows investors to cash out at NTA if they wish to dispose of their investment. 35 Mr Oakes submits that where the acquiring entity already has shares or units in a managed investment scheme on issue, the "marrying" of the two funds to reflect their respective NTAs becomes a critical commercial element, and to be fair to both parties needs to be as close as possible to the date on which the acquisition occurs. He submits that necessarily this is after both the date of the Scheme Meeting and the date of the second court hearing. This raises a disclosure issue, which is dealt with in the Scheme Booklet, by providing worked examples of what the Scheme Consideration might look like, assuming various NTA calculations. 36 I am satisfied that AEG has been trading at a material discount to NTA and that the timing of the Calculation Date reduces the risk of adverse movements in the relative pre-tax NTA values of AEG and WLE after the Calculation Date impacting the value of the Scheme Consideration. This risk is reduced by limiting the timeframe between the calculation of the Scheme Consideration and the implementation of the Scheme. 37 Although Scheme Participants will not know the exact number of New WLE Shares they will receive until immediately before the Implementation Date, I accept that the Scheme provides certainty that each Scheme Participant will receive Scheme Consideration with an aggregate pre-tax NTA value on the Implementation Date that is close to the pre-tax NTA of their AEG shares. 38 Similar schemes allowing members of listed investment companies to exit at NTA, at values calculated after a meeting of scheme participants to approve a scheme, have been approved in recent years: PM Capital Asian Opportunities Fund Limited, in the matter of PM Capital Asian Opportunities Fund Limited [2021] FCA 1380 at [28] to [35] (Beach J); see also Leaders Fund at [3] (Stewart J) referring to Watermark Market Neutral Fund Limited v Equity Trustees Limited, in the matter of Watermark Market Neutral Fund Limited [2019] FCA 315 (Yates J); Watermark Global Leaders Fund Limited v Equity Trustees Limited, in the matter of Watermark Global Leaders Fund Limited [2019] FCA 316 (Yates J); In the matter of Ellerston Global Investments Limited [2020] NSWSC 879 (Black J).

Ineligible Overseas Shareholders 39 These shareholders will be cashed out in accordance with usual practice. At present, there are only eight overseas shareholders representing 0.05% of voting entitlements.

Shares in AEG held by Wilson Asset Management Group members 40 Section 10.4(a) of the Scheme Booklet discloses that Wilson Asset Management and its Associates (Wilson Asset Management Group) hold 1.4466% of the shares in AEG. In accordance with the approach in CCI Holdings Limited ABN 51 000 680 740 [2007] FCA 832 at [19] (Emmett J) these shares are not placed in a separate class for voting purposes, but their vote will be flagged so the Court will know at the second court hearing how they were voted. 41 The Wilson Asset Management Group members have stated that that they intend to abstain from voting in relation to the proposed Scheme.

Approval of the Scheme Booklet by the Court 42 AEG seeks an order that the Court approve the distribution of the explanatory statement to Scheme Participants. Sub-section 411(1) of the Act provides that if the Court has made an order convening a meeting of members or creditors, it may also "approve the explanatory statement". The explanatory statement is the Scheme Booklet. 43 I am satisfied in this case, for the reasons outlined above, that it is appropriate for an order to be made approving the distribution of the Scheme Booklet to Scheme Participants.

Disposition 44 On the basis of the material provided to the Court and the considerations outlined above, I am satisfied that the formal requirements contained in s 411 of the Act for the convening of a meeting of members to consider the Scheme and to approve the Scheme Booklet for circulation to members of AEG have been met. I am satisfied that the discretion of the Court should otherwise be exercised to order the convening of a meeting of the shareholders of AEG and to approve the Scheme Booklet for distribution to Scheme Participants. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.

Corporations Act 2001(Cth)ss 411, 412, 1319

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