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[2021] FCA 636
Federal Court of Australia
2021-06-09
Smith J
Original judgment source is linked above.
Introduction 1 On 22 April 2021 I made orders approving the convening of a meeting of shareholders for the purpose of considering a scheme of arrangement and approving the distribution of a scheme booklet: Asaleo Care Limited, in the matter of Asaleo Care Limited [2021] FCA 406. 2 The scheme involves all shares in the plaintiff (Asaleo) being transferred to Essity Holding Company Australia Pty Ltd (Bidder) as the nominee of Essity Group Holding BV (Essity BV). 3 The scheme meeting was held on 1 June 2021, and the members agreed to the scheme by the statutory majorities. 4 On 9 June 2021 Asaleo sought approval of the scheme and I made orders on that date. These are my reasons. Jurisdiction to approve scheme 5 Section 411(4) of the Corporations Act 2001 (Cth) (Act) relevantly provides that an arrangement is binding on the members of a company and the company if, at a meeting convened in accordance with an order of the court, a resolution in favour of the arrangement is passed by a majority in number of the members present and voting (either in person or by proxy; passed by 75% of the votes cast on the resolution; and the arrangement is approved by order of the court. Relevant considerations for second court hearing 6 The considerations relevant to the court's decision to approve a scheme pursuant to s 411(4)(b) of the Act are well established. 7 Where a majority of members have approved a scheme, the court is not bound to approve it. However, the court should be slow to conclude that a scheme is unreasonable or unfair, provided that the members have been properly informed of matters relevant to the making of their decision, as that would otherwise involve the court substituting its commercial judgment for that of the body of members: Seven Network Limited, in the matter of Seven Network Limited (No 3) [2010] FCA 400 at [31]-[40] (Jacobson J). 8 Similar observations were made by Beach J in Amcor Limited, in the matter of Amcor Limited (No 2) [2019] FCA 842, including that: [11] … the Scheme shareholders' vote in favour of the Scheme is evidence of its inherent fairness. Put another way, if a majority of the Scheme shareholders have approved the Scheme, it is unlikely that the Scheme would be unreasonable … 9 The matters the court must take into account in deciding whether to approve the scheme were summarised in Seven Network Limited (No 3) and David Jones Limited, in the matter of David Jones Limited (No 3) [2014] FCA 753 (Farrell J) and include whether: (a) the orders of the court convening the scheme meeting were complied with; (b) the resolution to approve the scheme was passed by the requisite majority, and whether other statutory requirements have been satisfied; (c) all conditions to which the scheme is subject (other than court approval and lodgement of the court's orders with the Australian Securities and Investments Commission (ASIC) have been met or waived; (d) the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it; (e) there was full and fair disclosure to shareholders of all information material to the decision whether to vote for or against the scheme; (f) the company has brought to the attention of the court all matters that could be considered relevant to the exercise of the court's discretion; and (g) the court is satisfied under s 411(17) that the scheme has not been proposed to avoid Chapter 6 of the Act, or that the company has a statement from ASIC that it has no objection to the scheme. 10 For the reasons that follow, I was satisfied as to all of these matters.
Evidence 11 Asaleo relied upon the following affidavit evidence: (a) affidavit of Mikkeli Godfree, special counsel at King & Wood Mallesons, (Fourth Godfree Affidavit) deposing as to the preparation of the documents that were sent to shareholders to convene the scheme meeting (including the scheme booklet), and as to the registration of the scheme booklet with ASIC prior to its dispatch. Mr Godfree also gave evidence concerning the advertisement of the second court hearing, and the fact that KWM did not receive any notice from any person wishing to oppose approval of the scheme; (b) affidavit of Sachin Tokhi (Tokhi Affidavit) of Link Market Services Limited, which was engaged by Asaleo to assist in relation to the convening and conduct of the scheme meeting. Mr Tokhi deposed to the preparation and dispatch of the documents sent to shareholders to convene the scheme meeting, namely the email sent to electronic shareholders, the scheme booklet, the proxy form and the Q&A form. Mr Tokhi also gave evidence as to the receipt and processing of proxy forms and online proxy voting instructions received prior to the scheme meeting. Mr Tokhi was the returning officer of the scheme meeting, and provided evidence as to the conduct of that meeting and the voting results; (c) affidavit of Victoria Serfozo (Serfozo Affidavit) of Link DigiCom Pty Ltd, which was engaged by Asaleo to assist in the preparation and dispatch of the documents sent to shareholders to convene the scheme meeting. Ms Serfozo gave evidence concerning the preparation and printing of the scheme booklet sent to shareholders; (d) affidavit of Harry Boon (Boon Affidavit), an independent non-executive director of Asaleo and Chairman of the board of Asaleo, who was chair of the scheme meeting, and gave evidence as to the conduct of the scheme meeting, including the voting results; and (e) further affidavit of Mr Godfree (Fifth Godfree Affidavit), which annexed certificates from Asaleo and Essity BV confirming that all conditions precedent had been satisfied or waived, a letter from ASIC stating that it has no objection to the scheme for the purposes of s 411(17)(b) of the Act, and confirming that KWM has not received any formal or informal notice from any person wishing to oppose approval of the scheme.
Ensuring disclosure to shareholders - s 412(1) 12 Verification processes were implemented to ensure that the scheme booklet did not contain any misleading statements and that it satisfied the applicable disclosure requirements (Asaleo (No 1) at [28]. 13 As required by s 412(6) of the Act, the explanatory statement (which was included within the scheme booklet) was registered by ASIC prior to being sent to shareholders. Before registering the explanatory statement, ASIC must conclude that it appears to comply with the requirements of the Act, and ASIC must form the opinion that the statement does not contain any matter that is false in a material particular or materially misleading in the form and context where it appears. It is a matter of some weight that ASIC proceeded to register the scheme booklet.
Convening the meeting 14 I am satisfied that the meeting was properly convened. Having regard to the Tokhi Affidavit and the Serfozo Affidavit, I am satisfied that the orders as to availability of the scheme booklet electronically and its dispatch by hard copy were complied with. 15 The meeting was properly advertised.
Conduct of scheme meeting 16 Having regard to the Boon Affidavit and the Tokhi Affidavit, I am satisfied that the requirements of the orders convening the meetings were complied with. It was properly conducted electronically through an online platform, which was accessed by instructions that were included in the notice of the scheme meeting sent to shareholders (and I comment on this further below). The meeting was properly advertised. A quorum was present.
Voting majorities 17 The evidence establishes that the resolution to agree to the scheme was passed by 99.86% of the votes cast and 89.54% of shareholders present and voting (in each case, in person or by proxy). Therefore, the statutory thresholds were met. 18 As indicated in the previous reasons (Asaleo (No 1) at [34]), Essity BV and the Essity-nominee directors on the board of Asaleo had informed Asaleo that they would abstain from voting at the scheme meeting. The evidence establishes that they did not vote at the scheme meeting.
Voter turnout 19 The number of shares voted at the scheme meeting as a percentage of Asaleo's total issued share capital was 52.94%. The number of shareholders who voted as a percentage of the total number of Asaleo's shareholders was 8.54%. 20 The level of shareholder turnout of 8.54% may be considered relatively low. 21 A low voter turnout is to be treated with some care on these applications because it may reflect issues as to notice or other procedural compliance: see generally TriAusMin Limited, in the matter of TriAusMin Limited (No 2) [2014] FCA 833 at [10]-[12]; and the spectrum of voter turnouts considered in Decimal Software Limited, in the matter of Decimal Software Limited (No 2) [2018] FCA 2040 at [19]-[21]. 22 However, it does not follow that there are any such issues. In Amcor (No 2), Beach J, in addressing a similarly low voter turnout, adopted (at [20]) the following extract from Re Matine Ltd (1998) 28 ACSR 268, where Santow J said at 295: The apathetic shareholder who chooses not to vote upon a scheme should not be presumed to be antagonistic to the scheme or to warrant paternalistic protection. 23 In this case, I am satisfied that there was no relevant irregularity with respect to the dispatch of material to shareholders or the manner in which the voting was conducted, or any evidence of matters that might have deterred voters from participating. I should add that the scheme meeting occurred during a period in Victoria of 'lockdown', in response to the COVID-19 Pandemic. However, as the convening orders permitted the meeting to be conducted electronically through an online platform without members being physically present, the intervention of lockdown did not deny the ability of shareholders located in Victoria to participate. Having regard in particular to the Boon Affidavit, I am satisfied that all appropriate steps were in place to facilitate online provision of proxies and voting and there was an opportunity for shareholders to ask questions in advance and during the course of the scheme meeting. 24 Further, I note from the Tokhi Affidavit that the level of voter turnout was consistent with (and higher than) the voter turnout for Asaleo's last four Annual General Meetings. 25 Accordingly, I do not consider the low voter turnout should prevent the Court from making orders under s 411(4)(b).
Announcement of the poll 26 Counsel for Asaleo drew one matter to the Court's attention with respect to the result of the poll conducted at the scheme meeting, the issue being that the results were announced after the meeting was closed. Mr Boon deposed to the effect that at the scheme meeting he put the scheme resolution to the vote; he informed the meeting that the results of the voting would be released on the Asaleo website and to the Australian Stock Exchange (ASX) once the votes were counted after the scheme meeting; and he then declared the meeting closed (at approximately 3.25 pm). The votes, including those cast by proxy, were then calculated by Mr Tokhi as returning officer. The result of the poll was announced to the ASX and announced on Asaleo's website on the same date (1 June 2021). 27 The question of the timing of the completion of a poll process was considered by Barrett J in The MAC Services Group Limited [2010] NSWSC 1474. His Honour concluded: [22] … Rather, it should be accepted that the process of a poll, of its nature, may extend beyond the time at which the persons making up the meeting at which it is demanded and directed cease to be together and, if the poll has been directed in such a way that the result can only crystallise after that time, the meeting is to be regarded as continuing until the result does crystallise. In using the word 'crystallise', I deliberately avoid the choice between ascertainment of the result and formal declaration of the result (see, as to this distinction in the case of election of officers, R v Coaks (1854) 3 El & Bl 249; 118 ER 1133; Lynch v McGrane (1965) 7 FLR 188). Ascertainment will always precede declaration but the important factor is, to my mind, completion of the process, as directed, so that the result is manifested in a way appropriate to the circumstances. Romer LJ, in his concurring judgment in Holmes v Keyes, said (at 217) that the tenure of the directors elected did not begin 'until the result of the poll has been made known', this being the form of words also preferred by Holland J in Ryan v South Sydney Junior Rugby League Club Ltd (1974) 3 ACLR 486 at 490. 28 This reasoning was recently accepted by Gleeson J in In the matter of CSG Limited (No 2) [2020] NSWSC 39 at [6]-[8]. I also accept Barrett J's reasoning, and do not consider any issue arises in this case as to the manner in which the poll was conducted.
Conditions precedent 29 Before approving a scheme, the court will ordinarily require that all conditions precedent to the scheme (other than the court's approval and the lodgement of the court's approval order with ASIC) have been satisfied or waived, so as to remove doubt about the binding nature of the scheme: In the Application of United Medical Protection Limited [2007] FCA 631 at [19]. 30 Certificates from Asaleo and Essity BV were provided to the Court and I am satisfied on the basis of the Fifth Godfree Affidavit that the conditions precedent have been satisfied or waived.
No proscribed purpose 31 The court's power to approve a scheme is restricted by s 411(17) of the Act. At the approval stage, the court must be satisfied there is no proscribed purpose as described in s 411(17)(a), or there must be provided to the court a statement in writing by ASIC that it has no objection to the arrangement (see s 411(17)(b)). 32 A 'no objection' statement was provided by ASIC, and this satisfies the requirements of s 411(17)(b). 33 It is otherwise well established that the court should not refuse approval of a scheme of arrangement merely because it could have been effected under Chapter 6 of the Act.
All necessary matters have been brought to the attention of the Court 34 At the first hearing, Asaleo notified the Court of several matters warranting the Court's attention. They were addressed in Asaleo (No 1) at [44]-[72]. I do not consider any of those matters present an impediment to approval.
Full and fair disclosure to members 35 The content of the explanatory statement provided to members was considered at the first hearing, and the Court indicated that it was satisfied to the necessary level that, by the scheme booklet, there would be proper disclosure as to the effect of the proposed scheme and the material considerations to which shareholders ought to have regard. I also note the matters addressed above with respect to s 412(1).
The scheme is fair and reasonable 36 Asaleo submitted that the scheme is fair and reasonable in the sense that an intelligent and honest shareholder, properly informed and acting alone, might approve the scheme, and referred to the following matters ins support of its submission: (a) the overwhelming support of the shareholders as reflected in the voting results of the scheme meeting; (a) the recommendation from the Independent Board Committee and the managing director that shareholders vote in favour of the scheme for the reasons given in the scheme booklet, and the fact that the members of the Independent Board Committee and the managing director stated their intention to vote all of the Asaleo shares held or controlled by them in favour of the scheme (Asaleo (No 1) at [29], [34]); (b) the opinion of the independent expert that the scheme is fair and reasonable and in the best interests of Asaleo shareholders. The basis for this conclusion was that the total amount of $1.42 that shareholders will receive if the scheme is implemented (on the assumption that the special dividend of $0.02 is paid) lies within (albeit towards the lower end of) the assessed value range for Asaleo shares of $1.39 to $1.49 per Asaleo share: Asaleo (No 1) at [32]. Immediately following the scheme meeting on 1 June 2021, the Asaleo Board declared that Asaleo would pay the special dividend, subject to the Court approving the scheme; (c) the disclosures in the scheme booklet of the potential benefits and disadvantages of the scheme; (d) that there is nothing to suggest that the scheme has been proposed other than in good faith or that the shareholders voted other than in good faith or that any shareholder was oppressed; (e) that there is no application to oppose the orders approving the scheme, and no evidence as to any oppression in the conduct of the scheme meeting; and (f) the scheme contains measures to protect shareholders against performance risk. 37 I accept those submissions, and add that the affidavits and submissions filed in this matter indicated considerable care and objectivity. I am satisfied that the scheme is fair and reasonable.
Exemption from s 411(11) 38 Section 411(11) of the Act requires, subject to s 411(12), that a copy of the court's order approving a scheme of arrangement be annexed to every copy of the company's constitution issued after the order is made. Section 411(12) allows the court to exempt a body from compliance with this provision or to determine the period during which it shall comply. 39 I considered that exemption from compliance with s 411(11) is appropriate given that the scheme will not alter the constitution of Asaleo or the rights of shareholders, creditors or other persons dealing with the company. Further, no ongoing purpose will be served by requiring the orders approving the scheme to be annexed to Asaleo's constitution.
Conclusion 40 For the above reasons, I made orders approving the scheme. 41 I note that the Bidder and Essity BV were represented separately at the hearing before me and through counsel supported the application for approval of the scheme. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.