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[2013] FCA 761
Federal Court of Australia
2013-08-01
Farrell J
Original judgment source is linked above.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. "A"
Notice of hearing to approve compromise or arrangement (rule 3.4) No. NSD1219/2013
IN THE MATTER OF ASSOCIATED ADVISORY PRACTICES LTD ACN 118 000 150
ASSOCIATED ADVISORY PRACTICES LTD ACN 118 000 150 Plaintiff TO all the creditors and members of Associated Advisory Practices Ltd ACN 118 000 150 (AAP). TAKE NOTICE that at 10.00am on 16 August 2013, the Federal Court of Australia at the Law Courts Building, Queen's Square, Sydney will hear an application by AAP seeking the approval of a compromise or arrangement between the above-named company and its redeemable preference shareholders, proposed by a resolution to be considered, and if thought fit, passed (with or without modification) at the meeting of the redeemable preference shareholders of AAP to be held on 12 August 2013 at Level 2, Fawkner Centre, 499 St. Kilda Road, Melbourne, Victoria, commencing at 10.00am. If you wish to oppose the approval of the compromise or arrangement, you must file and serve on AAP a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on AAP at its address for service at least one day before the date fixed for the hearing of the application. The address for service of AAP is McCullough Robertson Lawyers, Level 11, Central Plaza Two, 66 Eagle Street, Brisbane, Queensland 4001. Name of person giving notice or of person's legal practitioner: Peter Stokes, McCullough Robertson Lawyers - 07 3233 8714. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1221 of 2013
IN THE MATTER OF ASSOCIATED ADVISORY PRACTICES (NO 2) LIMITED ACN 126 371 346 ASSOCIATED ADVISORY PRACTICES (NO 2) LIMITED ACN 126 371 346
JUDGE: FARRELL J DATE OF ORDER: 15 July 2013 WHERE MADE: SYDNEY
Notice of hearing to approve compromise or arrangement (rule 3.4) No. NSD1221/2013
IN THE MATTER OF ASSOCIATED ADVISORY PRACTICES (No. 2) LTD ACN 126 371 346
ASSOCIATED ADVISORY PRACTICES (No. 2) LTD ACN 126 371 346 Plaintiff TO all the creditors and members of Associated Advisory Practices (No. 2) Ltd ACN 126 371 346 (AAP2). TAKE NOTICE that at 10.00am on 16 August 2013, the Federal Court of Australia at the Law Courts Building, Queen's Square, Sydney will hear an application by AAP2 seeking the approval of a compromise or arrangement between the above-named company and its redeemable preference shareholders, proposed by a resolution to be considered, and if thought fit, passed (with or without modification) at the meeting of the redeemable preference shareholders of AAP2 to be held on 12 August 2013 at Level 2, Fawkner Centre, 499 St. Kilda Road, Melbourne, Victoria, commencing at no earlier than 11.00am. If you wish to oppose the approval of the compromise or arrangement, you must file and serve on AAP2 a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served AAP2 at its address for service at least one day before the date fixed for the hearing of the application. The address for service of AAP2 is McCullough Robertson Lawyers, Level 11, Central Plaza Two, 66 Eagle Street, Brisbane, Queensland 4001. Name of person giving notice or of person's legal practitioner: Peter Stokes, McCullough Robertson Lawyers - 07 3233 8714. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1219 of 2013
IN THE MATTER OF ASSOCIATED ADVISORY PRACTICES LIMITED ACN 118 000 150 ASSOCIATED ADVISORY PRACTICES LIMITED
IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1221 of 2013
IN THE MATTER OF ASSOCIATED ADVISORY PRACTICES (NO 2) LIMITED ACN 126 371 346 ASSOCIATED ADVISORY PRACTICES (NO 2) LIMITED
JUDGE: FARRELL J DATE: 1 AUGUST 2013 PLACE: SYDNEY
REASONS FOR JUDGMENT 1 These are my reasons for making orders on 15 July 2013 under s 411(1) of the Corporations Act 2001 (Cth) (Corporations Act) to convene a meeting of a class of members of each of the respective plaintiff companies to consider approving schemes of arrangement and under s 1319 of the Corporations Act in relation to ancillary matters. The applications by the plaintiff companies were heard together, and the plaintiffs were represented by the same Counsel.
The Schemes 2 The first plaintiff company is Associated Advisory Practices Limited ACN 118 000 150 (AAP No 1) and I will refer to the proposed scheme between AAP No 1 and a class of its members as the AAP Scheme. The second plaintiff company is Associated Advisory Practices (No 2) Limited ACN 126 371 346 (AAP No 2) and I will refer to the proposed scheme between AAP No 2 and a class of its members as the AAP2 Scheme. Unless is it is necessary to distinguish between the Schemes for any reason, I will refer to them simply as the "Scheme" or together as the "Schemes". I may refer to the plaintiff companies individually as "Company" and together as "Companies". 3 The Schemes are "acquisition" schemes and therefore within the concept of an "arrangement" which has often been approved by Australian courts. For convenience, words which are defined in the booklets which are Exhibit 1 and Exhibit 2 (Scheme Booklets) have the same meaning in these reasons. In general, those terms are used in the way they are commonly used in "acquisition" schemes of arrangement, unless otherwise indicated.
The Companies 4 AAP No 1 is an unlisted public company which was registered in Queensland on 23 January 2006. Its principal activity is the provision of financial services and support for boutique licensees, particularly advisory services and support for practice management, professional standards and best practice processes. There are 123 AAP shareholders of which 122 are entitled to vote at the AAP Scheme Meeting. 5 AAP No 2 is an unlisted public company which was registered in Queensland on 4 July 2007. Its principal activity is the same as that of AAP No 1. There are 83 shareholders of which 82 are entitled to vote at the AAP2 Scheme Meeting.
Acquirer 6 In each case the acquiring company is Centrepoint Alliance Limited ACN 052 507 507 (CAF), a public company shares in which are listed for quotation on markets operated by the Australian Securities Exchange Limited (ASX). CAF is a specialist financial services company which provides wealth management, financial advice, insurance funding, financial planning, investment advice, risk management, funds management and administrative platform services and finance broking to a diverse range of clients. Following the sale of CAF's Singapore and Malaysia businesses, CAF will focus on its two principal Australian businesses: funding (through Centrepoint Alliance Premium Funding Pty Limited), and wealth and advice services (through its wholly owned subsidiary Centrepoint Wealth Pty Limited (CPW)). CAF acquired CPW through a merger in December 2010. The last of the CAF shares issued as consideration in the merger with CPW were released from escrow in June 2013.
Shareholding structure of the Companies pre and post Schemes 7 CPW holds all of the shares issued by the Companies other than 3,193,574 redeemable preference shares issued by AAP and 1,782,019 redeemable preference shares issued by AAP2 (defined as AAP Shares and AAP2 Shares respectively in the Scheme Booklets). CPW does not own any of the redeemable preference shares in the same class as AAP Shares and AAP2 Shares. CPW has a 55% interest in each of the Companies. 8 The Schemes therefore relate to all of the shares issued by the Companies other than those held by CPW. The Schemes are interdependent. If the Schemes become Effective, the Companies will become wholly owned subsidiaries of CAF.
Rationale for the Schemes 9 AAP Shares and AAP2 Shares appear to be a method for enabling financial advisors to have an equity participation in the Companies. Such an interest will be prohibited by provisions of the Corporations Act dealing with conflicted remuneration which came into effect on 1 July 2013 but which, under grandfathering provisions in the Corporations Regulations 2001 (Cth), will allow those interests to be held until 30 June 2014. The Schemes are said to allow the holders of AAP Shares and AAP2 Shares to realise the value in them before the changes come into operation (see item 7 of "Reasons to support the Proposal" in the Scheme Booklets).
Directors and directors' interests 10 The boards of the Companies are the same and the interests of directors are set out at Section 10.1 of the Scheme Booklets. Two of the non-executive directors, Craig Hargraves and Jason Cutrupi, collectively hold less than 3% of the AAP Shares and no AAP2 Shares. The other non-executive director, Mr Barry Smith, has no interest in any shares in the Companies. Nor do the directors, Ms Efrossiney Cargakis (who is also general manager of AAP No 1 and also referred to as Ms Soula Cargakis) and Mr John de Zwart (who is managing director of CAF). Ms Cargakis and Mr Smith hold shares in CAF (approximately 0.07% in aggregate). 11 The non-executive directors recommend acceptance of the Schemes and the other directors have, because of their relationship with CAF, refrained from making recommendations.
Independent Expert 12 Because one of the directors of CAF is also a director of each of the Companies and CPW holds interests greater than 30% of the voting shares in the Companies, Schedule 8 of the Corporations Regulations 2001 (Cth) requires that an independent expert assess the Schemes. WMS Corporate Services Pty Limited was appointed as the Independent Expert to provide reports and they are set out in Annexure A of the Scheme Booklets.
Scheme Consideration 13 The AAP Scheme Consideration is 1.25 CAF Shares for each AAP Share. The Independent Expert values the AAP Scheme Consideration at between 52 cents and 58 cents per AAP Share and values each AAP Share at between nil to 14 cents on a control basis. 14 The AAP2 Scheme Consideration is 1.16 CAF Shares for every AAP2 Share. The Independent Expert values the AAP2 Scheme Consideration at between 49 cents and 54 cents per AAP2 Share and values each AAP2 Share at between nil and 21 cents on a control basis.
Independent Expert's recommentation 15 The Independent Expert concluded that in each case the Scheme is fair and reasonable and the Scheme is in the best interests of the members of the Company in the absence of a superior offer. CAF Shares to be issued as Scheme Consideration will be subject to escrow arrangements under which they cannot be traded for a time: 50% for 18 months and the other 50% for 24 months from the Effective Date. In forming the view that the Scheme Consideration was reasonable in both cases, the Independent Expert had regard to the escrow arrangements. He also had regard to the rights attaching to AAP Shares and AAP2 Shares. 16 The AAP Shares and the AAP2 Shares are voting shares. They may be redeemed at any time at the discretion of the Board. The issue and redemption price is at the discretion of the Board but the Board may redeem at a price referable to that at which shares in that class were issued in the previous 12 months. They are transferable only with Board approval or approval of an ordinary resolution.
Merger Implementation Deeds and Deed Polls 17 The Companies entered into Merger Implementation Deeds with CAF on 20 June 2013 and they are set out in Annexure B of the Scheme Booklets. The Merger Implementation Deeds are in a usual format. Under clauses 6.1 and 6.2 of the Merger Implementation Deeds, each Company and CAF agreed to do all things reasonably necessary to propose and implement the Schemes. Under clause 6.2(b), by the time Scheme Booklets are despatched to shareholders of the Companies, CAF is obliged to execute a deed poll (in the form of Annexure C to the Scheme Booklets) in favour of Scheme Participants as at the Record Date for the Schemes. Under the Deed Polls, CAF undertakes to observe and perform all obligations under the Schemes, including the obligation to allot the Scheme Consideration. 18 Clause 13 of the Merger Implementation Deeds sets out so called deal protection measures including "no shop", "no talk" and "notification rights" arrangements. These arrangements are subject to a fiduciary carve out (with the exception of the "no shop" arrangements). They are disclosed in Section 9.5 of the Scheme Booklets.
Relevant law 19 Section 411(1) of the Corporations Act relevantly provides that, where an arrangement is proposed between a company and its members the Court may, on the application of the company in a summary way, order a meeting of the members of the company to be convened in such manner and to be held at such place as the Court directs. The Court may also approve the explanatory statement required by s 412(1)(a) to accompany the notice of such a meeting. 20 Section 412(1)(a) of the Corporations Act relevantly provides that, where a meeting is convened under s 411(1), the company must, with every notice convening the meeting, send a statement explaining the effect of the arrangement. Such a statement must state any material interests of the directors and the effect of the proposed arrangement on those interests insofar as they may differ from the effect on like interests of other persons. The statement must also set out such information as is prescribed and any other information that is material to a member's decision to agree or not agree to the arrangement. Consideration of the adequacy of disclosure is a central task of the Court at the first Court hearing. Essentially, the question is whether shareholders have been provided sufficient information to make a decision whether to vote for or against the proposed Scheme. 21 The Court must not make an order pursuant to an application under s 411(1) unless 14 days notice of the hearing of the application has been given to the Australian Securities and Investments Commission (ASIC) and the Court is satisfied that ASIC has had a reasonable opportunity to examine the terms of the proposed arrangement and the draft explanatory statement, and to make submissions to the Court regarding the arrangement and statement. 22 The Court will not ordinarily convene a meeting of members to consider a scheme of arrangement unless the Court is satisfied that the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting of members, the Court would be likely to approve the scheme on the hearing of an unopposed application: Re Central Pacific Minerals NL [2002] FCA 239 at [8]; Re CSR Ltd (2010) 183 FCR 358 at [12]; Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 504. By granting leave to convene the meeting, the Court does not give its imprimatur to the proposed scheme or foreshadow its approval at the second court hearing for the purposes of s 411(4)(b): Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [36]; Australian Securities Commission v Marlborough Gold Mines Limited at 504-505. The question for the Court is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed as being beneficial to members: In re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 243; Re CSR Ltd at [80]. The Court does not need to be satisfied that no better scheme could have been proposed: Re Foundation Healthcare Ltd at [44]. Ultimately, the question is for the members themselves: see FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72. 23 So called deal protection measures have been considered regularly by the Courts, and the Courts will usually not interfere where the measures are generally consistent with the guidance provided by the Takeovers Panel in Guidance Note 7 - Lock-up Devices. In Re APN News & Media Ltd (2007) 62 ACSR 400 at [55], Lindgren J suggested that evidence should be led in relation to these matters. 24 Given the ex parte nature of these applications, it is the duty of counsel to bring to the Court's attention all matters that could be considered relevant to the exercise of its discretion. See: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [7].
Affidavit evidence 25 Affidavit evidence was provided by Mr Cutrupi and Mr Smith (as officers of the Companies), Mr Ian Magee (verifying CAF material), Mr Aaron Lavell (a director of the Independent Expert), and Mr Ben Wood (of McCullough Robertson Lawyers, verifying relevant dealings with ASIC).
Part 5.1 body 26 I am satisfied that the Companies and CAF are each a "Part 5.1" body. 27 Rule 9.5 of the Companies' constitutions allows the directors to prohibit transfers at any time in their absolute discretion. As CAF through its subsidiary CPW already holds 55% of the shares in each of the Companies, this will not be an issue.
ASIC 28 ASIC has provided the "usual letter". I am therefore satisfied for the purposes of s 411(2) of the Act that ASIC received 14 days' notice of the hearing and that it has had adequate opportunity to consider the Scheme Booklet and make submissions to the Court.
Chairman of Scheme Meeting 29 Mr Cutrupi or failing him Mr Smith, both directors of the Companies, have consented to act as Chairman of the Scheme Meetings and I am satisfied that in all of the circumstances they are appropriate to do so. 30 The Companies have requested that the Chairman of the Scheme Meetings have power to adjourn the meeting in his discretion. I agree that this is a convenient mechanism to prevent unnecessary applications to the Court.
Classes 31 Each of the Schemes relates to a class of members. Neither CAF nor CPW holds shares in that class in either of the Companies.
Verification 32 Mr Cutrupi for the Companies and Mr Magee for CAF have each deposed to a verification process (which appears to be in a normal format) undertaken in relation to those parts of the Scheme Booklets for which those companies are respectively responsible.
Lock-up devices 33 Mr Cutrupi deposes that the "no shop", "no talk" and "notification rights" features of the Merger Implementation Deeds were a material requirement of CAF, negotiated at arms length, with CAF being self represented and the Companies being represented by external legal advisors. The Exclusivity Period runs from 20 June 2013 to the earlier of 30 September 2013, the date the Schemes become Effective (expected to be 16 August) or the date the Merger Implementation Deeds terminate in accordance with their terms. Mr Cutrupi says he believes entry into the Merger Implementation Deeds containing these terms was in the best interests of the shareholders of the Companies, and notes the fiduciary and statutory carve outs. The lock-up devices appear to be generally as contemplated by the Takeovers Panel in Guidance Note 7 - Lock-up Devices, and, in the absence of a break fee, they should not be coercive of shareholders in expressing their attitude to the proposal.
Foreign shareholders 34 There is a pro forma disclosure in the "Important Notices" section of the Scheme Booklets which indicates that the Booklets and Schemes do not constitute offers in any place in which, or to any person to which, it would be unlawful to make those offers. Mr Cutrupi has deposed that as at 11 July 2013 there were no shareholders of either of the Companies with foreign addresses. Accordingly there are no provisions which create a sale facility for CAF Shares comprising the Scheme Consideration.
Performance Risk and Warranty 35 I am satisfied that performance risk and the warranty provided by shareholders under the Schemes (including the Merger Implementation Deeds and Deed Polls) have been addressed in the manner which has become usual in schemes of arrangement approved by the Courts.
Conditions 36 The Schemes are subject to usual conditions. Specific to these transactions, the Schemes are each subject to the requirement that the other Scheme becomes Effective. All conditions of the Scheme (including the conditions set out in the Merger Implementation Deeds) must have been satisfied or waived by 8 am on the date of the second court hearing, other than those relating to the Court approval of the Scheme and lodgement of the Court's orders with ASIC. The Merger Implementation Deeds and the Deed Polls must not have been terminated. Accordingly, the Scheme will be self executing if the Court makes the order unconditionally or on conditions imposed under s 411(6) which are acceptable to the Companies and the orders are lodged with ASIC.
issues which arose at the first court hearing 37 The following issues were raised at the first court hearing and resulted in amendments to the Scheme Booklets.
Rationale for the Scheme 38 The Chairman's letter provided no rationale for proposing the Schemes; they appeared simply to be transactions having the result of eliminating minorities from subsidiary companies. The rationale was set out in item 7 of "Reasons to support the Proposal" under the general heading of "Considerations in relation to the Proposal" in the Scheme Booklets. Counsel advised the Court that most of the shareholders of the Companies are in the financial advisory industry, so the rationale for the Schemes may well have been understood by shareholders. However, the Companies agreed to provide a cross reference to this material in the Chairman's letter for clarity.
Status of directors 39 In the draft of the Scheme Booklets provided to the Court, Messrs Cutrupi, Hargraves and Smith were described as "Independent Directors", yet in the Independent Expert's Report they were described as "Executive Directors". Counsel for the Companies advised the Court that the reference in the Independent Expert's Report was wrong and would need to be amended. However, the Companies have common boards, and at least one of the non-executive directors has been involved with an advisory board to a company in the CAF group. The non-executive directors will continue in that role if the Schemes are implemented. 40 The term "independent director" carries significant weight, especially when coupled with a recommendation. In the circumstances, the Companies agreed to refer to them as "non-executive directors".
No break fee 41 As has become usual where there are deal protection measures, Counsel for the Companies advised the Court as to whether or not there was a break fee - in this case there is not. However, this fact was not drawn to the attention of shareholders of the Companies. In a context where there is extensive (and appropriate) disclosure of deal protection measures (lock-up devices), it is important for the fact that there is no break fee to be expressly stated. Otherwise the very weight of the necessary disclosure concerning deal protection measures may mislead shareholders as to the consequences of how they vote. It should be clear to shareholders that where there is no break fee, the decision whether to approve or reject the scheme has no consequences other than the fact that that the Scheme will or will not be implemented.
Orders 42 Based on the material provided to the Court and the matters referred to in these reasons, there is no evidence at this stage to suggest that the Scheme is not bona fide or proposed for an improper purpose. The formal requirements of s 411 for the Court to order the convening of a meeting of members to consider the Schemes and to approve the Scheme Booklets for circulation to members of the Companies appear to have been met. The orders sought by the Companies should therefore be made, subject to the amendment of the Scheme Booklets to address the issues raised at the hearing. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.
Australian Securities Commission
Marlborough Gold Mines Limited