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Alstom Signalling Solutions Pty Ltd, in the matter of Alstom Signalling Solutions Pty Ltd v Alstom Transport Australia Pty Limited - [2023] FCA 799 - FCA 2023 case summary — Zoe
Pursuant to r 2.13 of the Federal Court (Corporations) Rules 2000 (Cth) (Rules), leave be granted to Next Capital Pty Ltd ACN 111 963 583, ALO Bidco Pty Ltd ACN 668 552 430, and ALO Holdco Pty Ltd ACN 668 550 418 to be heard in the proceeding without becoming a party to it.
Pursuant to s 411(1) and 1319 of the Corporations Act 2001 (Cth) (the Act):
(a) the Plaintiff convene:
(i) a meeting (General Scheme Meeting) of its ordinary shareholders excluding Founding Shareholders (defined below); and
(ii) a meeting (Founding Shareholders Scheme Meeting) of its ordinary shareholders Davkat (Australia) Pty Ltd as trustee for Bandon Trust (being an entity controlled by William Creedon) and Bubbles 1 Pty Ltd as trustee for Karen Howard Family Trust (being an entity controlled by Karen Howard) (Founder Shareholders),
together (Scheme Shareholders) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed to be made between Alloggio and the Scheme Shareholders (Scheme), the terms of which are set out in Attachment 1 to Annexure D of the document which has been tendered and marked Exhibit 1 (Scheme Booklet);
(b) the General Scheme Meeting be held virtually via an online meeting platform hosted by Automic https://investor.automic.com.au at 9.30 am AEDT on 15 August 2023;
(c) the Founding Shareholders Scheme Meeting be held virtually via an online meeting platform hosted by Automic https://investor.automic.com.au immediately after the General Scheme Meeting, but no earlier than 10.00am AEDT, on 15 August 2023;
(d) provisions of the Plaintiff's Constitution as to quorum be taken to be satisfied provided that two Scheme Shareholders present and entitled to vote attended the meeting online or by proxy or by an attorney under power or by a corporate representative (if applicable);
(e) the chairperson of the Scheme Meetings be Matthew Keen or, failing him, John Murphy;
(f) the chairperson of the Scheme Meetings shall have the power to adjourn the Scheme Meetings to such time, date and place as he considers appropriate;
(g) at the General Scheme Meeting and the Founding Shareholders Scheme Meeting, the resolution to approve the Scheme be decided by way of a poll;
(h) the explanatory statement substantially in the form of the Scheme Booklet be approved for distribution to Scheme Shareholders;
Pursuant to s 1319 of the Act there be dispatched to:
(a) each Scheme Shareholder who has nominated an email address for the purpose of receiving notices of meeting and proxy forms from the Plaintiff (Email Shareholders), an email which includes access by an embedded link to the following:
a. electronic copy of the Scheme Booklet;
b. an online portal or website that is accessible by email shareholders and which enables Email Shareholders to lodge their proxy for the Scheme Meeting and voting instructions online; and
c. a direct credit facility form; and
(b) each Scheme Shareholder who has not provided an email address for the purpose of receiving notices of meetings and proxy forms from the Plaintiff or has elected to receive a hard copy of all materials from the Plaintiff (in accordance with the Act), by pre-paid post (or in the case of a shareholder whose registered address is outside Australia, by pre-paid air mail) to the address recorded in Alloggio's share register:
a. a letter which contains details of the website through which the shareholder can attend the online Scheme Meeting;
b. a printed copy of the Scheme Booklet;
c. printed copies of the proxy form;
d. a direct credit facility form; and
e. a reply paid envelope for the return of the shareholder's proxy form.
If an email notification of a failure to deliver an email to a Scheme Shareholder's nominated email address pursuant to order 2(a) above of these orders is received, there be dispatched a letter which contains details of the website at which the shareholder can view and download the Scheme Booklet, how they can obtain a hard copy of the Scheme Booklet, the website through which the shareholder can attend the Scheme Meeting online, and which letter also encloses a printed proxy form.
Pursuant to r 3.3(2) of the Rules, notwithstanding s 249Y(3) of the Act, the appointment of a proxy in respect of the Scheme Meeting shall not be revoked or suspended by the appointing ordinary shareholder of Alloggio (Alloggio Appointor) attending and taking part in the Scheme Meeting, but if the Alloggio Appointor votes on a resolution at the Scheme Meeting, the proxy is not entitled to vote as the Alloggio Appointor's proxy on that resolution and any such vote must not be counted in the results of the relevant poll.
Pursuant to r 1.3 of the Rules, compliance with the following requirements of the Rules be dispensed with:
(a) rule 2.4(1), to the extent that rule requires the affidavit filed with the Originating Process to state the facts in support of the process;
(b) rule 2.15;
(c) rule 3.2(b)(ii); and
(d) rule 3.4 and Form 6.
The Plaintiff is to publish an announcement via the Australian Securities Exchange containing the substance of the matters set out in Form 6 of the Rules by no later than 18 August 2023.
The proceeding be stood over to 10.15 am (AEDT) on 28 August 2023 for the hearing of any application to approve the Scheme.
Liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
[2]
INTRODUCTION
1 By an originating process filed on 3 July 2023, the plaintiff, Alloggio Group Limited (ACN 645 582 225) (Alloggio), applied, among other things, for orders pursuant to ss 411 and 1319 of the Corporations Act 2001 (Cth) (Act) to convene a share scheme meeting (Scheme Meeting) of its members to consider a proposed scheme of arrangement (Scheme) between Alloggio and its shareholders (Scheme Shareholders). On 7 July 2023 I made the orders that were sought. My reasons for making the orders are set out below.
2 The Scheme, if approved and implemented, will result in the acquisition of all the shares in Alloggio by Next Capital Pty Ltd (ACN 111 963 583) (Next) or its nominee.
3 Alloggio is an Australian public company limited by shares. It was incorporated on 2 November 2020. Alloggio provides services for the management, distribution and operation of short-term rental accommodation.
4 As at 3 July 2023 Alloggio had on issue:
(a) 200,730,021 ordinary shares;
(b) 8,000,000 Director Options;
(c) 2,000,000 Employee Options; and
(d) 3,000,000 Lead Manager Options.
5 The Scheme Implementation Deed (SID), entered into on 27 March 2023, contemplated payment to general shareholders of $0.30 cash, and to William Creedon and Karen Howard (Founding Shareholders) scrip consideration of one fully paid ordinary share in "Bidder Holdco" (which is defined to mean the holding company of the "Bidder Nominee", in short, the entity intended to be nominated by Next to acquire the ordinary shares) per Alloggio share. However, following an earnings downgrade, on 13 June 2023 an amended SID was executed providing for revised cash consideration of $0.24 per ordinary share.
6 Because the Founding Shareholders are to receive consideration in a different form from the other Scheme Shareholders (General Shareholders) the Scheme envisages the convening of separate meetings for shareholders in these two classes (Scheme Meetings). The Founding Shareholders will not vote, in respect of any of the shares they hold, in the General Shareholders' meeting.
[3]
EVIDENCE RELIEd UPON BY ALLOgGIO
7 The application is supported by the following affidavits.
8 The affidavit of Andrew William Travis affirmed on 1 July 2023 annexes a company extract of Alloggio.
9 The affidavit of Michael Anthony Potts, Chief Financial Officer of Alloggio, sworn on 5 July 2023, describes the scheme and certain issues that arise in relation to it (which I discuss below). The affidavit describes the verification process for information contained in the Scheme Booklet that originates from Alloggio, including the expert report. Exhibits to the affidavit contain the draft Scheme Booklet and proxy forms.
10 An affidavit of Oliver Talbot affirmed on 5 July 2023 provides information concerning the nominee of Next that will formally acquire shares in Alloggio, the verification process for information originating with Next that is included in the Scheme Booklet, and the negotiation of exclusivity conditions contained in the SID (in particular the Break Fee).
11 A further affidavit by Mr Travis, dated 6 July 2023, exhibits further information on the verification process and updated correspondence on an issue in relation to options. It also exhibits a "no objection" letter from ASIC received on 6 July.
[4]
Formal requirements to exercise s 411(1) power
12 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.
13 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, reg 5.1.01; Sch 8 cls 8301-8310 of the Corporations Regulations 2001 (Cth);
(d) the procedural requirements of the Federal Court Rules 2011 (Cth) (Federal Court 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).
14 I am satisfied that the evidence upon which Alloggio relies is sufficient to establish that:
(a) Alloggio is a Part 5.1 body;
(b) the Scheme Participants are members of Alloggio;
(c) each of the Scheme Meetings 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 Federal Court 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.
15 If the preconditions to the exercise of power under s 411(1) to order the convening of a meeting have been satisfied, it is necessary to consider whether that power ought to be exercised pursuant to the Court's discretion.
[5]
Relevant principles for the exercise of discretion
16 In Absolute Equity Performance Fund Ltd, in the matter of Absolute Equity Performance Fund Ltd [2022] FCA 834, Halley J summarised at [18]-[22] the relevant principles for the exercise of the discretion to order the convening of a meeting to consider approving a proposed scheme of arrangement as follows.
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].
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).
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).
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].
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].
[6]
DISPOSITION
17 Alloggio's directors other than the Founding Shareholders (who, as noted above, are to receive a different form of consideration) have formed an Independent Board Committee (IBC), which unanimously recommended the Scheme to shareholders in the absence of any superior proposal and subject to the independent expert's report. The IBC included one director who disclosed that he is the father of a director of Next. Having been properly disclosed, this connection is not a reason why the director could not make a recommendation, or a reason why scheme meetings should not be convened. Each of the directors intends to vote the Alloggio shares they hold or control in favour of the Scheme.
18 The Independent Expert, BDO Finance (East Coast) Pty Ltd (BDO), has prepared a report which is included in the Scheme Booklet. BDO has concluded that the scheme is fair and reasonable. The consideration of $0.24 per share is towards the upper end of the fair market value range as assessed by BDO ($0.22 to $0.25). BDO has also concluded that the scrip consideration provided to the Founding Shareholders is not superior to the consideration provided to General Shareholders.
19 Clause 3.1(h) of the SID requires Alloggio's board to make a determination that all outstanding options are to be exercised, lapsed or cancelled before 5 pm on the business day before the Scheme Record Date, unless that requirement is waived by Next.
(a) Each Alloggio director has agreed that their Director Options will lapse if the Scheme becomes effective.
(b) Alloggio's board has adopted a plan under which all existing Employee Options (which are able to be cancelled without payment) will be cancelled with a payment of $0.10 per option (which is equivalent to the consideration for ordinary shares under the Scheme less the exercise price of the option).
(c) Alloggio has given the holders of Lead Manager Options notice that, if not exercised within the Revised Option Exercise Period (ie before the Scheme Record Date), their options will lapse. One of the holders (On-Market Bookbuilds Pty Ltd) has not responded. The other (Bell Potter Nominees Ltd) (Bell Potter) has disagreed with the view that its options will lapse. This disagreement may not be resolved by the time the Scheme, if approved, comes into effect. However, the existence of the dispute (as to which Alloggio's board has taken the view that Bell Potter's position has no merit) would not appear to prevent the board making a determination in the terms required by cl 3.1(h). It will also be open to Next to waive the relevant requirement. To the extent that this circumstance gives rise to any doubt as to whether the conditions precedent for implementation of the Scheme will be met, it is something that the shareholders may take into account (and is disclosed in the draft Scheme Booklet). It is not a reason why the Scheme should not be allowed to be voted on.
20 The Break Fee provided for in the SID is equivalent to around 1.23 percent of the equity value of Alloggio, calculated by reference to the Scheme consideration of $0.24 per share. It therefore exceeds the guideline of 1 percent referred to in the Australian Government Takeovers Panel Guidance Note 7 - Lock-up devices, 4th issue, 11 February 2010. However, that does not in itself stand in the way of a meeting being convened (see, eg, Gindalbie Metals Limited, in the matter of Gindalbie Metals Limited [2019] FCA 953 a [27]-[28]). There is evidence that the Break Fee was originally calculated on the basis of the $0.30 per share valuation used in the original SID (which would make it just under 1 percent), and it has been retained in the original amount on the basis that it was a genuine pre-estimate of the costs incurred by Next in the transaction. There is also evidence that Next's costs to date exceed the Break Fee. The Break Fee is payable in specified circumstances, which do not include the Scheme Shareholders declining to approve the Scheme.
21 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 approval of the Scheme Booklet for circulation to members of Alloggio have been met. I am satisfied that the discretion of the Court should be exercised so as to order the convening of a meeting of the shareholders of Alloggio and to approve the Scheme Booklet for distribution to Scheme participants.
22 I note that Alloggio has presented the evidence in support of its application in a fashion consistent with the views expressed by Jackman J in Vita Group Ltd, in the matter of Vita Group Ltd [2023] FCA 400 (Vita Group). I have found that approach to be appropriate in this case. The form of orders sought by Alloggio reflects the orders made in Vita Group, in that it includes dispensation from particular provisions of the Federal Court (Corporations) Rules 2000 (Cth). Having concluded that it was appropriate to make orders for the convening of meetings of shareholders as proposed by Alloggio, I was content to make the orders in that form, essentially for the reasons given by Jackman J.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Kennett.
Parties
Applicant/Plaintiff:
Alstom Signalling Solutions Pty Ltd, in the matter of Alstom Signalling Solutions Pty Ltd