- Australian Securities and Investments Commission v Lewski

Supreme Court of NSW|2019-11-13|Before: Black J

Solicitors: Herbert Smith Freehills (Plaintiffs) Allens (Interested Party) File Number(s): 2019/285476

Background

By Originating Process filed on 12 September 2019, the First Plaintiff, Aveo Group Limited ("AGL") sought orders under s 411 of the Corporations Act 2001 (Cth) convening a meeting of its members to consider a scheme of arrangement between AGL and its members and, subsequently, for approval of the scheme ("Company Scheme"). The Second Plaintiff, Aveo Funds Management Limited ("Aveo Funds RE"), which is the responsible entity of the Aveo Group Trust ("Trust"), also sought judicial advice to the effect that it was justified in convening a meeting of its unitholders to consider an amendment to the constitution of the Trust to facilitate a transfer of all units in a manner consistent with the Company Scheme proposed by AGL ("Trust Scheme"). I made orders in the form sought by the Plaintiffs at the hearing on 27 September 2019, for the reasons set out in a subsequent judgment (Re Aveo Group Limited and Aveo Funds Management Limited [2019] NSWSC 1348).
A meeting of AGL and Aveo Funds RE securityholders, at which the resolutions giving effect to the Trust Scheme were put, and the meeting relating to the Company Scheme, were held concurrently on 6 November 2019. Shareholders in AGL approved the Company Scheme, both by a majority in number present and voting and by more than 75% of the votes cast and both resolutions put at the Trust Scheme meeting to give effect to the Trust Scheme were also passed by Aveo securityholders.

Affidavits

AGL and Aveo Funds RE rely on an affidavit dated 18 October 2019 of Ms Rebecca Maslen-Stannage, a solicitor acting for AGL and Aveo Funds RE in the application, which deals with an issue that arose in respect of the treatment of New Zealand securityholders who had elected to receive scrip consideration in respect of the Company Scheme and Trust Scheme, which had the result that such consideration could only be issued to New Zealand securityholders which were "wholesale investors" as defined in the Financial Markets Conduct Act 2013 (NZ).
An affidavit dated 8 November 2019 of Mr Walter McDonald, a non-executive director of AGL and Aveo Funds RE, deals with the conduct of the relevant meetings. Mr McDonald addresses questions asked and discussion in respect of the scheme resolution, which included concerns addressed by some securityholders as to the value at which the securities were being acquired under the Company Scheme and Trust Scheme, and the response which he gave to those questions. Mr McDonald also refers to the outcome of votes on the Company Scheme resolution, which was passed by 81.35% of shareholders by number and 91.86% of the number of votes cast; and the Trust Scheme resolutions, relating to the amendment of the constitution and the acquisition of units respectively, which were each passed by in excess of 81% of unitholders voting and in excess of 91% of votes cast.
AGL and Aveo Funds RE also rely on an affidavit dated 11 November 2019 of Ms Roopa Paresh, a senior relationship manager employed by Computershare Investor Services Pty Limited which deals with the maintenance of the register of Aveo securityholders, the dispatch of the scheme booklet and related documents, an issue which arose in respect of one securityholder who received two proxy forms, the steps taken to address that issue, and the dispatch of a document by way of supplementary disclosure pursuant to an order of the Court made on 21 October 2019. Ms Paresh also refers to the receipt of proxies in respect of the scheme, attendance at the scheme meeting and to voting at the scheme meeting, and gives evidence that the voting participation rate at the meeting was in excess of 67%.
By a further affidavit dated 12 November 2019, Ms Maslen-Stannage refers to several amendments that had been made to the scheme booklet after the first Court hearing, and prior to the registration of the scheme booklet with the Australian Securities and Investments Commission, which were not of a material character; to the registration of the scheme booklet; to the fact that it was now expected that the minimum scrip consideration threshold (as identified in the scheme booklet) will be satisfied; and to amendments which had been made to the constitution of Hydra RL TopCo Pty Ltd and a loan note deed, which are also not of a material character. Ms Maslen-Stannage also referred to the advertisement which had been published giving notice of the second Court hearing and to the opening of a trust account with an Australian ADI in which the cash consideration payable in respect of the scheme would be received on behalf of Aveo securityholders. Ms Maslen-Stannage noted that no notice had been received from any party wishing to appear at the second Court hearing, and no securityholder appeared at that hearing and sought to oppose the approval of the scheme or the orders sought in respect of the Trust Scheme.
Aveo also tendered a letter dated 12 November 2019 from the Australian Securities and Investments Commission ("ASIC"), which indicated that ASIC had no objection, under s 411(17)(b) of the Corporations Act to the proposed Company Scheme (Ex A1). Certificates indicating the satisfaction of relevant conditions precedent were executed by each of AGL, Aveo Funds RE and the entities associated with the acquirer (Ex A2; Ex R1).

Issue of scrip consideration to New Zealand resident securityholders

I have regard to the fact that, as Mr Williams points out, an issue emerged after the first Court hearing in relation to the provision of the scrip consideration to Aveo securityholders resident in New Zealand. I have referred above to Ms Maslen-Stannage's evidence as to that issue. At the time of the first Court hearing, AGL, Aveo Funds RE and the acquiring entities contemplated that Aveo securityholders with registered addresses in New Zealand could be offered scrip consideration in respect of the proposed scheme under exemptions and mutual recognition arrangements that apply to offers of securities to New Zealand residents, and the definition of "Ineligible Foreign Securityholder" in the scheme booklet and the definition of "Ineligible Foreign Shareholder" in the Company Scheme contemplated that New Zealand resident securityholders would be eligible to receive the scrip consideration. It subsequently emerged that the scrip consideration could not be offered to New Zealand residents under New Zealand securities laws unless the securityholder qualified as a "wholesale investor" under the Financial Markets Conduct Act, to which I referred above.
On 21 October 2019, the Court made a direction under s 1319 of the Corporations Act authorising AGL and Aveo Funds RE to dispatch an additional disclosure document to each New Zealand resident securityholder who had requested an election form (so as to make an election for the scrip consideration), which advised that the scrip consideration was now only offered to Aveo securityholders resident in New Zealand who met the definition of a "wholesale investor" under New Zealand securities laws. That disclosure document enclosed a certificate to be completed by a New Zealand securityholder electing the scrip consideration certifying that they were a wholesale investor under New Zealand securities laws.
As at 22 October 2019, eight New Zealand resident Aveo securityholders had requested an election form, seven of which had elected the scrip consideration by returning that form. The supplementary disclosure document approved by the Court was dispatched to those securityholders on 22 October 2019, and no other New Zealand resident securityholders requested an election form after 22 October 2019. As at the Election Time (as specified), three of these securityholders had returned the certificate certifying their status as wholesale investors.
Mr Williams points out that it is proposed that the remaining four New Zealand resident securityholders who did not certify their status as wholesale investors will receive cash consideration, consistent with the prohibition under New Zealand law on issuing the scrip consideration to them. AGL also seeks an alteration to the Company Scheme as approved by Aveo securityholders to amend the definition of "Ineligible Foreign Shareholder" to include New Zealand resident securityholders who are not wholesale investors under the Financial Markets Conduct Act.
Mr Williams submits, and I accept, that such an alteration is properly made to the scheme to prevent the acquiring entities breaching New Zealand securities laws and is not prejudicial to scheme members, where the several New Zealand securityholders who cannot receive the scrip consideration will will be treated in the same way as all other securityholders resident in jurisdictions in which it is not possible or practical to offer the scrip consideration and will receive cash consideration. Mr Williams also rightly points out that the independent expert had, as I noted in the earlier judgment, concluded that the scheme was in the best interests of Aveo securityholders by reference to the amount of that cash consideration. Mr Williams submits, and I accept, that that alteration does not impinge upon or affect the spirit and intendment of the scheme as a whole or detract from the rights and entitlements of members: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [21].
Mr Williams also submits, by way of disclosure, that Aveo Funds RE proposes to make a further amendment to the Trust constitution under s 601GC(1)(b) of the Act, immediately following the making of the amendments approved by Aveo securityholders, which will amend the definition of "Ineligible Foreign Securityholder" in cl 1.1 of the Trust constitution to conform it to the equivalent definition in the Company Scheme. That amendment will be made on the basis that the change will not adversely affect the rights of Aveo securityholders, as that concept is explained in Australian Securities and Investments Commission v Lewski [2018] HCA 63; (2018) 362 ALR 286 at [46]-[57]. I note that matter and do not consider that it gives rise to any reason not to approve the Company Scheme or give the judicial advice sought.

Whether the Court should approve the Company Scheme under s 411(4)(b) of the Corporations Act

Mr Williams points to well established principles applicable to whether the Court should approve the Company Scheme at the second Court hearing. In determining whether to approve that scheme, the Court will have regard to whether applicable procedural requirements have been satisfied and will exercise a judicial discretion as to whether or not to approve the scheme: Re Central Pacific Minerals NL [2002] FCA 239 at [12]; Re Redcape Property Fund Ltd and The Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 at [7]. The Court will generally have regard to whether the securityholders have voted in good faith and not for an improper purpose; whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone might approve it; whether the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; whether there has been full and fair disclosure of all information material to the decision; whether minority shareholders would be oppressed by the scheme; whether the scheme offends public policy; and whether the interests of other groups who are not parties to, but are affected by, the scheme are dealt with appropriately: Re Seven Network Ltd (No 3) [2010] FCA 400 at [35]-[40]. The Court will give weight to securityholders' assessment of their own interests, as manifested by the voting at the scheme meeting: Re Central Pacific Minerals NL above at [13]; Re International Coal Holdings Limited [2011] FCA 209 at [16].
Mr Williams points out that the independent expert's report in respect of the scheme concluded that the Company Scheme was in the best interests of members, in the absence of a superior proposal, that the required majority of securityholders have approved the Company Scheme, and that AGL has made out a case for approval of the Company Scheme pursuant to s 411(4)(b) of the Act. I am satisfied that the Court's orders in respect of the Company Scheme were complied with and that resolutions giving effect to the Company Scheme were passed by the requisite majorities at the scheme meeting. As I noted above, the Plaintiffs have led evidence that ASIC has no objection to the Company Scheme, for the purposes of s 411(17)(b) of the Corporations Act. I am also satisfied that an intelligent and honest man or woman who was a securityholder in AGL, properly informed and acting alone, might approve the Company Scheme, as the requisite majority of securityholders have done. The Plaintiffs notified the Court of several matters warranting the Court's attention at the first scheme meeting; I addressed those matters in my earlier judgment; and I held that they did not prevent convening the Company Scheme meeting. For the same reasons, none of those matters would warrant a refusal to approve the Company Scheme at this hearing.
I am also satisfied that, as the Company Scheme will not involve a modification of any rights of shareholders or of creditors or of persons dealing with AGL, there is no need to require compliance with s 411(11) of the Act. I therefore also made the exemption order sought under s 411(12) of the Act.

Whether the Court should give judicial advice in respect of the Trust Scheme

Mr Williams in turn refers to the nature of an application for judicial advice in this context, and notes that such advice is directed to the question whether a responsible entity is justified in giving effect to and implementing the proposals approved by unitholders: Re Mirvac Limited (1999) 32 ACSR 107 at [48]; Re Homemaker Retail Management Ltd (2001) 40 ACSR 116 at [5]-[7]; Re Macquarie Goodman Funds Management Ltd (2004) 52 ACSR 194 at [10]. In order to give such advice at the second Court hearing, the Court will need to be satisfied that the procedural requirements to obtain unitholders' approval have been satisfied: Re Cromwell Property Securities Ltd [2006] NSWSC 1449 at [23]. In determining whether to give such advice, the Court will also give considerable weight to the level of support by members of the proposal, and also to whether any person appears at the second Court hearing to express any opposition to it: Re Commonwealth Managed Investments Ltd [2014] NSWSC 244 at [3].
Mr Williams submits that Aveo Funds RE has made out its case for the giving of judicial advice to the effect that it is justified in implementing the Trust Scheme in accordance with the resolutions passed by unitholders at the Trust meeting. I am satisfied that the advice sought should be given.

Orders

For these reasons, I made the orders sought by the Plaintiffs at the second Court hearing on 13 November 2019.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 November 2019

Corporations Act 2001(Cth)ss 411, 411(4), 411(4)(b), 411(11), 411(12), 411(17)(b), 601GC(1)(b), 1319

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