Australian Leaders Fund Ltd v Equity Trustees Ltd, in the matter of... [2024] FCA 567 | Case summary

Federal Court of Australia|2024-05-24|Before: Halley J

Pursuant to s 411(1) and s 1319 of the Corporations Act 2001 (Cth) (Act), the plaintiff convene and hold a meeting (Scheme Meeting) of its members holding fully paid ordinary shares (QVE Shareholders): (a) to consider, and, if thought fit, to approve (with or without modification) a scheme of arrangement proposed to be made between the plaintiff and the Scheme Participants as defined in the Scheme Implementation Agreement as varied (Tab 4, Exhibit APPM-1 to the affidavit of Anthony Peter Patrick McKillop sworn on 23 May 2024 (McKillop Affidavit)) (Scheme), the terms of which are contained in Annexure D to the Scheme Booklet (a copy of which is Exhibit 1); (b) to be held: (i) in person at Dexus Place Auditorium, Level 15, 1 Farrer Place, Sydney, NSW 2000; and (ii) online by way of live webcast, (c) on 28 June 2024 commencing at 10.00 am (Sydney time).
The scheme booklet, substantially in the form of Exhibit 1, which comprises the explanatory statement as required by s 412(1)(a) of the Act (Scheme Booklet), is hereby approved for the purposes only of s 411(1) of the Act, for distribution to QVE Shareholders.
On or before 29 May 2024 there be dispatched to each QVE Shareholder whose name is recorded in the plaintiff's register of members at 5.00 pm (Sydney time) on 22 May 2024 (and thereafter to any shareholders who come on to the register in the period between 23 May 2024 and 19 June 2024, as soon as practicable: (a) in the case of QVE Shareholders who have elected to receive shareholder communications electronically (Email Shareholders), an initial email which contains URL links to: (i) an electronic copy of the Scheme Booklet (including the explanatory statement approved for distribution by the Court, a notice of Scheme Meeting and an "online virtual meeting guide" containing instructions on how QVE Shareholders can participate in the Scheme Meeting via Link Market Services Pty Ltd's (Link) online platform); (ii) Link's online proxy voting submission platform; (iii) a proxy form for the Scheme Meeting substantially in the form contained at pages 550 to 553 of Tab 5, Exhibit APPM-1 to the McKillop Affidavit (Proxy Form); (iv) an election form substantially in the form contained at pages 554 to 555 of Tab 5, Exhibit APPM-1 to the McKillop Affidavit (Election Form); (v) the online virtual meeting guide containing instructions on how to participate in the Scheme Meeting substantially in the form contained at pages 564 to 567 of Tab 5, Exhibit APPM-1 to the McKillop affidavit (Virtual Meeting Guide); and (vi) a direct credit facility form for Email Shareholders who do not have a bank account recorded with Link for their QVE shareholding; (b) in the case of QVE Shareholders who have elected to receive hard copy communications (Postal Shareholders), a package sent by pre-paid post to the relevant address recorded in the plaintiff's register, or in the case of QVE Shareholders whose registered address is outside Australia, a package sent by airmail or international courier service, which contains hard copies of: (i) the Scheme Booklet (including the explanatory statement approved for distribution by the Court, a notice of Scheme Meeting and an "online virtual meeting guide" containing instructions on how QVE Shareholders can participate in the Scheme Meeting via Link's online platform); (ii) a personalised Proxy Form and a reply paid envelope or air mail reply paid envelope (as applicable) for the return of the Proxy Form; (iii) a personalised Election Form and a reply paid envelope or air mail reply paid envelope (as applicable) for the return of the Election Form; (iv) the Virtual Meeting Guide; and (v) for those Postal Shareholders who do not have a bank account recorded with Link for their QVE shareholding, a direct credit facility form; (c) in the case of QVE Shareholders who have not elected to receive electronic or hard copy communications (Other Shareholders), a letter sent by pre-paid post to the relevant address recorded in the plaintiff's register, or in the case of QVE Shareholders whose registered address is outside Australia, sent by airmail or international courier service, which: (i) contains a URL link to an electronic copy of the Scheme Booklet (including the explanatory statement approved for distribution by the Court, a notice of Scheme Meeting and an "online virtual meeting guide" containing instructions on how QVE Shareholders can participate in the Scheme Meeting via Link's online platform); (ii) encloses a personalised Proxy Form, a reply-paid envelope or air mail reply paid envelope (as applicable) for the return of the Proxy Form; (iii) encloses a personalised Election Form and a reply paid envelope or air mail reply paid envelope (as applicable) for the return of the Election Form; (iv) encloses for those Other Shareholders who do not have a bank account recorded with Link for their QVE shareholding, a direct credit facility form; and (v) contains a URL link to the online Virtual Meeting Guide.

A. INTRODUCTION 1 On 24 May 2024, I made orders pursuant to s 411(1) and s 1319 of the Corporations Act 2001 (Cth) (Act) for the plaintiff, QV Equities Limited ACN 169 154 858 (QVE), to convene a meeting (Scheme Meeting) of its members to consider and vote upon a proposed scheme of arrangement (Scheme) between QVE and its shareholders (Scheme Participants). 2 These are my reasons for making those orders. 3 The Scheme, if approved and implemented, will result in the transfer of all the issued ordinary shares in QVE to WAM Leaders Limited ACN 611 053 751 (WAM Leaders). The consideration that Scheme Participants will receive will be: (a) shares in WAM Leaders in exchange for their shares in QVE (Scrip Consideration); or (b) if they make a valid election, a cash amount for each QVE share that they hold (Cash Consideration) or a combination of Scrip Consideration and Cash Consideration, (together, Scheme Consideration). 4 Ms T Wong SC and Ms S Scott of counsel appeared for QVE. They provided extensive written and oral submissions which have been of considerable assistance in preparing these reasons for judgment. WAM Leaders appeared at the hearing with leave of the Court and were represented by Ms V Whittaker SC and Mr A Oakes of counsel. 5 I note that on 28 May 2024, after orders had been made on 24 May 2024 but before the publication of these reasons, it came to QVE's attention that there was an error in the booklet for the Scheme (Scheme Booklet) and election form which required correction, with respect to the process by which Scheme Participants were to submit their election forms. QVE's solicitors promptly approached my chambers seeking orders varying the orders made on 24 May 2024 to address this issue. This was an appropriate course of action: BigAir Group Ltd, in the matter of BigAir Group Ltd (No 2) [2016] FCA 1513 at [10] (Yates J). I was satisfied that those orders should be made, and made the orders accordingly.

B. EVIDENCE RELIED UPON BY QVE 6 The application was supported by the following evidence: (a) an affidavit of Lucy Ann Adamson, a solicitor employed by Hazelbrook Legal, the solicitors acting for QVE in the Scheme, affirmed on 10 May 2024, together with Exhibit LAA-1, being a company search of QVE; (b) an affidavit of Anthony Peter Patrick McKillop, the Chair and an independent non-executive director of QVE, and the proposed Chair of the Scheme Meeting, sworn on 23 May 2024, together with Exhibit APPM-1, which, among other things, provides an overview of the Scheme, the Scheme Consideration, the consideration of the Scheme by the Board of QVE, the proposed manner in which the Scheme Meeting is to be held, the due diligence and verification process undertaken by directors and officers of QVE of the Scheme Booklet, and the provision of the Scheme Booklet to the Australian Securities and Investments Commission (ASIC); (c) an affidavit of Jesse Michael Hamilton, the company secretary of WAM Leaders, sworn on 23 May 2024, explaining the due diligence review of information contained in the Scheme Booklet that had been undertaken by directors and officers of WAM Leaders; and (d) a letter from ASIC to the directors of QVE dated 24 May 2024, confirming that (a) ASIC had been given at least 14 days' notice of the first court hearing for the Scheme, (b) it has examined the terms of the Scheme and the draft explanatory statement in accordance with its Regulatory Guide 60, and (c) it does not propose to appear to make submissions or intervene at the first court hearing for the Scheme.

C. OVERVIEW OF THE SCHEME 7 Under the scheme implementation agreement dated 12 March 2024, as amended by a letter of variation dated 3 May 2024, entered into between QVE and WAM Leaders, the formulas that will be used to calculate the Scheme Consideration are as follows: (a) Scrip Consideration: the number of new WAM Leaders shares to be offered for each QVE share will be determined by a formula based on the ratio of the net tangible assets of WAM Leaders before tax (NTA), to the pre-tax NTA of QVE, per share on the calculation date, being 5.00 pm on the date the Scheme becomes effective (currently expected to be 4 July 2024) (Calculation Date); (b) Cash Consideration: where a Scheme Shareholder elects to receive Cash Consideration, they will receive cash for their QVE shares at a 2.5% discount to the pre-tax NTA value per QVE share. 8 Scheme Participants may inform QVE in writing prior to 5.00 pm on the date of the Scheme Meeting, or such other date that the parties agree in writing (Election Date) whether they wish to receive: (a) Cash Consideration; (b) Scrip Consideration; or (c) a combination of Cash Consideration and Scrip Consideration. 9 If a Scheme Participant does not make a valid election or their election is not received by the QVE registry by the Election Date, they will receive the Scrip Consideration for all of their QVE shares. 10 If the Scheme becomes effective: (a) WAM Leaders will acquire all of the QVE shares; (b) all QVE shares held by Scheme Participants will be transferred to WAM Leaders (without any need for action by Scheme Participants); (c) QVE will become a wholly owned subsidiary of WAM Leaders; (d) Scheme Participants will receive the Scheme Consideration in exchange for each QVE share held by that Scheme Shareholder at the record date, being the second business day after the date on which the Scheme becomes effective (Record Date); and (e) QVE will be removed from the official list of the ASX and will cease to be listed on the ASX. 11 Scheme Participants will not know the exact number of WAM Leaders shares or the amount of Cash Consideration that they will receive as Scheme Consideration at the time of the vote at the Scheme Meeting. Under the terms of the Scheme, the Calculation Date will be the date the Scheme becomes effective, which is likely to be 4 July 2024 (being the date of the second court hearing). 12 The QVE Directors appointed Lonergan Edwards & Associates Limited (Independent Expert) as the independent expert to assess the merits of the Scheme. The Independent Expert has concluded that the Scheme is fair and reasonable and in the best interests of Scheme Participants, in the absence of a superior proposal. 13 The Independent Expert has assessed the value of QVE shares on a 100% controlling interest at between $0.99 and $1.02 per share. The Independent Expert has assessed the value of the Scrip Consideration to be between $1.02 to $1.05 per QVE share, which exceeds by $0.03 per share the assessed value of QVE, adopting an orderly realisation approach. Based upon QVE's pre-tax NTA as at 31 March 2024, the Independent Expert assessed the Cash Consideration for each QVE share at $1.02, which is greater than the low and mid-point estimates of assessed value per QVE share (of $0.990 and $1.005 respectively), and is equal to the high estimate of the assessed value per QVE Share (of $1.02). 14 All the directors of QVE, other than Simon Conn, have unanimously recommended that Scheme Participants vote in favour of the Scheme in the absence of a superior proposal and subject to the Independent Expert continuing to conclude that the Scheme is fair and reasonable and in the best interests of Scheme Participants. 15 Mr Conn disclosed a conflict of interest arising from his role as an employee, shareholder and director of Investment Mutual Limited ACN 078 030 752 which manages QVE's investment portfolio, whose services are likely to be terminated following implementation of the Scheme. Accordingly, Mr Conn did not join in a recommendation of the Board.

D.1. Formal requirements to exercise power conferred by s 411(1) of the Act 16 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. 17 In MOQ Limited, in the matter of MOQ Limited [2022] FCA 1160, I summarised the preconditions that have been considered necessary for the Court to make orders for the convening of a meeting to approve a proposed scheme of arrangement by reference to the statements made and the authorities cited by McKerracher J in Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 at [12]. 18 I was satisfied that the evidence upon which QVE relies is sufficient to establish each of the following matters that have been considered necessary preconditions to the Court making orders for the convening of a scheme meeting: (a) QVE is a Pt 5.1 body; (b) the Scheme Participants are members of QVE; (c) the Scheme Meeting will be convened between members of the same class; (d) the Scheme is bona fide and properly proposed; (e) the 14-day notice period to ASIC under s 411(2)(a) of the Act for the first Court hearing has been satisfied; (f) ASIC has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet and make any submissions to the Court; (g) the Scheme Booklet provides adequate disclosure and contains the prescribed information; (h) the Scheme can properly be described as an arrangement or a compromise; (i) a company search of QVE from the records of ASIC was conducted on 9 May 2024, being no earlier than 7 days before the originating process was filed on 13 May 2024, in compliance with r 2.4(2) of the Federal Court (Corporations) Rules 2000 (Cth) (Rules); (j) Mr McKillop, the proposed chair of the Scheme Meeting, gave evidence in his affidavit of the matters required by r 3.2 of the Rules, including with respect to Linda Cox, the alternate chair; (k) the proposed draft order for the convening of the Scheme Meeting identifies the Scheme as required by r 3.3(1) of the Rules; and (l) 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.

D.2. Relevant principles for the exercise of discretion 19 Once the preconditions to the Court's exercise of power under s 411(1) of the Act have been satisfied, it is then necessary to consider whether that power ought to be exercised pursuant to the Court's discretion. 20 In MOQ at [12]-[17], I summarised the principles that guide the exercise of the Court's discretion. For convenience, I set out that summary below: (a) 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 Limited (1993) 177 CLR 485 at 504 (Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ); Re Central Pacific Minerals NL [2002] FCA 239 at [8] (Emmett J); CSR Limited, in the matter of CSR Limited (2010) 183 FCR 358; [2010] FCAFC 34 at [12] (Keane CJ and Jacobson J). (b) At the first court hearing, the Court exercises its supervisory jurisdiction in order to review the scheme 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). (c) At the first court hearing, the Court should consider 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 at [15] (Stewart J), citing Re Sonodyne International Ltd (1994) 15 ACSR 494 at 499 (Hayne J); Integra Mining Limited, in the matter of Integra Mining Limited [2012] FCA 1414 at [11] (McKerracher J); and Amcom at [10]. (d) 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 Australian Leaders Fund at [15]. (e) 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 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 (Santow J); Australian Leaders Fund at [15].

D.3. Specific considerations 21 Given the ex parte character of an application for orders pursuant to s 411(1) of the Act, counsel for QVE specifically drew to my attention to the manner in which the Scheme Consideration is to be calculated and the treatment or existence of (a) dividends paid or declared by WAM Leaders to its shareholders for the financial year ended 30 June 2024, (b) ineligible overseas shareholders, (c) shares in QVE held by WAM Strategic Value (WAR) a related entity of WAM Leaders, (d) any excluded shareholder of QVE, (e) exclusivity provisions including "no shop", "no talk" and "no due diligence" restrictions, (f) the deemed warranty by Scheme Participants that their shares in QVE are fully paid, and (g) the manner in which communications with Scheme Participants are to be conducted. 22 I was satisfied that none of the matters raised by counsel for QVE raised any relevant concerns and each was consistent with established practice and principles. It is sufficient for present purposes to comment on only two of the matters raised. 23 First, the final Scheme Consideration will be announced on the last business day before the earlier of the fifth business day following the Record Date, or the second business day after the WAM Leaders and QVE pre-tax NTA values have both been confirmed (Implementation Date). The QVE and WAM Leaders pre-tax NTA value per share must be confirmed by the parties within 3 business days of the Calculation Date. It is currently expected that the final Scheme Consideration would be announced on 11 July 2024, the Implementation Date would be 15 July 2024 (which is also the date which the Scheme Consideration would be provided to Scheme Participants), and the new WAM Leaders shares are expected to commence trading on the ASX on 16 July 2024. 24 By positioning the Calculation Date as close as possible to the Implementation Date of the Scheme, the risk of adverse movements in the relative pre-tax NTA values of QVE Shares and WAM Leaders shares after the Calculation Date is reduced. Any adverse movements would otherwise have a negative impact upon the value of the Scrip Consideration. 25 An identical structure was employed by WAM Leaders in Absolute Equity Performance Fund Ltd, in the matter of Absolute Equity Performance Fund Ltd [2022] FCA 933, as I explained at [29]-[38]. Similar schemes which have allowed members of listed investment companies to exit at NTA values calculated after a meeting of scheme participants to approve a scheme, have been approved in recent years: PM Capital Asian Opportunities Fund Ltd, in the matter of PM Capital Asian Opportunities Fund Ltd [2021] FCA 1380 at [28]-[35] (Beach J); Australian Leaders Fund Ltd v Equity Trustees Ltd, in the matter of Australian Leaders Fund Ltd [2021] FCA 88 at [3] (Stewart J); Watermark Market Neutral Fund Ltd v Equity Trustees Ltd, in the matter of Watermark Market Neutral Fund Ltd [2019] FCA 315 (Yates J); Watermark Global Leaders Fund Ltd v Equity Trustees Ltd, in the matter of Watermark Global Leaders Fund Ltd [2019] FCA 316 (Yates J); In the matter of Ellerston Global Investments Ltd [2020] NSWSC 879 (Black J). 26 Second, the Scheme Booklet discloses that WAR holds 15.76% of the issued capital of QVE. Consistently with the approach taken by Emmett J in CCI Holdings Limited ABN 51 000 680 740 [2007] FCA 832 at [19], those shares have not been placed in a separate class for voting purposes as it would have constituted a class with a single member. In any event, WAM Leaders has confirmed that WAR will abstain from voting those shares at the Scheme Meeting.

E. DISPOSITION 27 On the basis of the material provided to the Court and the considerations outlined above, I was satisfied that the formal requirements contained in s 411 of the Act for the convening of a meeting of Scheme Participants to consider the Scheme and to approve the Scheme Booklet for circulation to Scheme Participants have been met. I was also satisfied that the discretion of the Court should otherwise be exercised to order the convening of a meeting of Scheme Participants and to approve the Scheme Booklet for distribution to Scheme Participants. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.

Corporations Act 2001(Cth)ss 411, 1319

Australian Leaders Fund Ltd v Equity Trustees Ltd, in the matter of Australian Leaders Fund Ltd

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