Order Convening Meetings - The Court's Discretion
38 The Court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the members' meeting, the Court would be likely to approve it on the hearing of the petition which is unopposed: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 (Street CJ).
39 However, the role of the Court at this stage of the process of a company propounding and implementing a scheme of arrangement is not to scrutinise finally whether the scheme should be approved. That decision must await the expression of the will of the members at the meeting and any argument that may be advanced on behalf of dissenting members or other interested parties at the time of the application for approval: Re Sonodyne International Ltd at 497.
40 The schemes proposed by Coventry are not so obviously unfair or otherwise inappropriate that they should be stopped in their tracks before going any further: see Re Foundation Healthcare at 265.
41 Further, the conclusion of the independent expert that the scheme is in the best interests of the members, confirms that the schemes are such that sensible business people would consider them to be of benefit to the shareholders and optionholders
42 The following observations address a number of matters relating to the fairness and appropriateness of the schemes Although none of these matters provides a basis for refusing to convene the scheme meetings, the Court's attention is drawn to them because the application is made ex-parte.
43 The Court should be satisfied that the scheme is properly proposed (bona fides and intra vires). However, where there is no suggestion of an improper purpose on the material before the Court, bona fides is a matter for consideration on any application to approve the scheme: Re NRMA Ltd (No 1) at [22]-[24]. Coventry's constitution does not prevent the schemes: Day affidavit, NFD-3 (pp504-565). There is nothing in the material before the Court that suggests the scheme has not been properly proposed.
44 The Court should be satisfied, prima facie, that there has been proper disclosure with nothing misleading or deceptive in any material sense: Re NRMA Ltd (No 1) at [3]. As noted above, the scheme booklet meets the disclosure requirements of s 411(3) and s 412, ASIC Guidance Note GN60, the takeover and prospectus provisions of the Corporations Act and Sch 8 of the Regulations. Accordingly, the Court should be satisfied that there has been proper disclosure.
45 Additionally, the Court should be satisfied that there is nothing apparently misleading or deceptive in the scheme booklet:
(a) Coventry's directors consider the contents of the scheme booklet to be accurate insofar as statements of fact relate to Coventry and there is no reason to believe that statements of fact relating to Crescent are inaccurate: Day affidavit, at paras [72]-[74];
(b) Coventry has undertaken a process for the purpose of verifying the accuracy of the statements in the scheme booklet: Day affidavit, at paras [70]-[71] and [75]-[79]; first Hicks affidavit, at paras [3]-[8]; and second Hicks affidavit.
46 Pursuant to the terms of the share scheme deed poll, share scheme, option scheme deed poll, option scheme and merger implementation deed, Crescent is required, prior to transfer of the Coventry scheme shares and Coventry scheme options, to:
(a) provide each eligible scheme shareholder the total number of new Crescent shares to which that eligible scheme shareholder is entitled; and
(b) issue the nominee, in accordance with the scheme, the total number of new Crescent shares to which ineligible foreign coventry shareholders would otherwise have been entitled;
(c) provide each scheme optionholder the total number of new Crescent options to which that scheme optionholder is entitled.
See cl 3, 7.8(b) of the share scheme deed poll, cl 4.2, 5, 7.2, 7.3 of the share scheme, cl 3.1, 7.8(b) of the option scheme deed poll, cl 4.2, 5, 7.2, 7.3 of the option scheme, cl 2.2, 4.4 and 4.6(a) of the merger implementation deed.
47 Pursuant to these terms Coventry is not obliged to transfer any shares to Crescent until the scheme consideration has been provided. The scheme consideration also does not involve the payment of money.
48 It follows that there is no significant performance or credit risk in this case: see, for example, Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 (Re APN News & Media Ltd) at [23].
49 The merger implementation deed contains provisions that prevent Coventry's directors soliciting alternative proposals and requiring Coventry to give notice of unsolicited proposals: cl 12.1, 12.2, 12.3 and 12.4 of the merger implementation deed. Crescent is subject to the same obligations.
50 Exclusivity provisions should meet the following criteria to satisfy the Court of any concerns relating to the impact of these provisions on competition and directors' duties:
(a) The period should be no more than a reasonable period capable of precise ascertainment.
(b) They should be framed so that they are subject to an overriding obligation not to breach the directors' fiduciary duties or be otherwise unlawful.
(c) There should be adequate prominence given to the constraint in the explanatory statement.
Re Arthur Yates & Co Ltd [2001] NSWSC 40; (2001) 36 ACSR 758 at [9]; Re APN News & Media Ltd at [29]-[35], [55]; Re Warwick Resources Ltd at [18].
51 The exclusivity provisions meet these criteria in this case.
(a) The exclusivity period is around 4 months (7 September 2012 to approximately early January 2013): merger implementation deed, at cl 1.1 and 12; Day affidavit, at para [90]. Periods of a similar length have been regarded as reasonable in other cases: Re APN News & Media Ltd at [31] (3.5 months). Indeed, periods of up to seven months have been considered reasonable: Talent2 International Limited, in the matter of Talent2 International Limited [2012] FCA 771 at [41] (Yates J, citing five other recent decisions).
(b) The provisions are mutual.
(c) The exclusivity provisions contain directors' fiduciary duty qualifications: cl 12.3(a) and cl 12.5 of the merger implementation deed.
(d) Prominence is given to the exclusivity provisions: s 14.2 of the scheme booklet.
52 The provisions were negotiated at arm's-length and included as commercial terms: Day affidavit, at paras [93]-[97]. That is, they form part of the consideration for securing a valuable opportunity (the scheme) for the benefit of the shareholders and optionholders and are considered commonplace in such transactions: Day affidavit, at paras [91(c)]-[91(d)].
53 The merger implementation deed contains break fee provisions: cl 13 of the merger implementation deed.
54 The Court examines break fee provisions to see that they do not operate unfairly or unduly fetter competition.
55 Under these provisions Coventry may become liable to pay Crescent a break fee of $150,000 in certain circumstances (break fee); cl 13.2 merger implementation deed. Crescent may also become liable to pay Coventry the break fee in similar circumstances: cl 13.3.
56 Coventry will not be liable to pay the break fee if the scheme becomes effective in any event: cl 13.4. Coventry will not be liable if Coventry is entitled to terminate the merger implementation deed: cl 13.2(a).
57 Coventry's potential liability to pay the break fee does not, in my view, provide a basis for refusing to allow the shareholders or optionholders to vote on the merits of the scheme for the following reasons:
(a) The break fee is a little more than 1% of Coventry's equity value. That is, it is not unduly anti-competitive.
(b) The break fee is reciprocal.
(c) The break fee was negotiated at arm's-length and was accepted as a commercial term of the merger implementation deed: Day affidavit, at paras [86(d)]-[86(e)] and [93]-[97].
(d) The break fee provisions, insofar as they affect Coventry, may fairly be regarded as the price for securing a valuable opportunity (the schemes) for the benefit of the shareholders and optionholders That price is commercially reasonable.
See Re Bolnisi Gold NL (No 2) [2007] FCA 2078; (2007) 165 FCR 45 at [2], [12], [38], [39]; Re APN News & Media Ltd at [49]-[55]; Re Rusina Mining at [50]-[56]; Takeovers Panel Guidance Note GN7, paras 9 and 10.
58 The scheme contains a provision in which the shareholders warrant that their shares are fully paid and unencumbered: cl 7.6(b) of the share scheme (page 334) and cl 7.6(b) of the option scheme (page 359). The existence of the provision is drawn to the attention of the shareholders and optionholders in the scheme booklet: sections 4.11 and 13.7 of the scheme booklet (pages 61 and 162-163).
59 Warranties in these terms generally do not give rise to the concern, expressed by some Courts, that encumbrances may gain the impression that the transfer adversely affects their security: Re APN News & Media Ltd at [57]-[63]; Investa Properties Limited, in the matter of Investa Properties Limited [2007] FCA 1104 (Investa); Hostworks Group Limited ACN 008 010 820, in the matter of Hostworks Group Limited ACN 008 010 820 [2008] FCA 64 at [41]; Macquarie Private Capital A Limited [2008] NSWSC 323 at [13]-[14].
60 The schemes contain the usual "clear title" or "no encumbrance" provisions: cl 7.6(a) of the share scheme (page 334) and cl 7.6(a) of the option scheme (page 359). These are expressed to be to "the extent permitted by law". So expressed the provisions do not give rise to the concern, expressed by some Courts, that third parties may gain the impression that their interests would be extinguished by the term: Investa at [25]-[30] (Lindgren J); Scarborough Equities Limited, in the matter of Scarborough Equities Limited (No 2) [2009] FCA 484 at [9]-[10] (Siopis J); Tower Australia Group Limited, in the matter of Tower Australia Group Limited [2011] FCA 224 at [15] (Stone J).
61 It is intended that shareholders in Canada, Hong Kong, the United States of America, Singapore and New Zealand will receive share scheme consideration.
62 There is the need for an exemption from the requirement under the Securities Act of 1933 (USA) (Securities Act) to register an offer or sale of securities, so far as the scheme of arrangement may have shareholders in the United States.
63 Section 3(a)(10) of the Securities Act provides an exemption from the requirement to register securities in the United States under the Securities Act, for certain court-approved exchange offers.
64 To obtain a s 3 exemption, the Court must be advised, prior to the hearing at which Coventry will seek orders approving the schemes, that the issuer of securities will not seek registration of the securities under the Securities Act, and will rely on the s 3 exemption, based on the Court's approval, in the event that the Court approves the schemes see Professional Investment Holdings Limited, in the matter of Professional Investment Holdings Limited (No 2) [2010] FCA 1336 at [55]; Re Cytopia Ltd (No. 2) [2010] VSC 4 at [23]; and Re Avoca Resources Limited, in the matter of Avoca Resources Limited [2011] FCA 208 at 29.
65 The Court has been suitably apprised of Coventry's intention to rely on a s 3 exemption: originating process at page 1 and in the Day affidavit, at para [40].
66 Crescent shares will not be issued to shareholders in countries in respect of which Coventry and Crescent are not reasonably satisfied that the laws of those countries would permit the issue and allotment of Crescent shares to those shareholders These shareholders will receive the scheme consideration as the sale proceeds from a sale of Crescent shares issued to a nominee who will sell those shares on behalf of the shareholders A process for the use of a sale agent exists under the merger implementation deed (cl 4.4). Such processes are not considered to be "class-creating": Re Hills Motorway Ltd at [9]-[13]; Re Opes Prime Stockbroking Ltd (No 2) [2009] FCA 813; (2009) 179 FCR 20 at [64]; oOh!Media Group Limited, in the matter of oOh! Media Group Limited [2012] FCA 26 at [30] (Yates J); Aston Resources Limited, in the matter of Aston Resources Limited [2012] FCA 229 at [32]-[33].
67 It is intended that optionholders in Canada, Singapore and Hong Kong will receive the option scheme consideration. These are the only countries outside Australia in which optionholders are located: Day affidavit at [41] and NFD-14 (page 958).