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[2015] FCA 1012
plaintiff. Orders made on 17 August 2015 convening separate scheme meetings for non-EMUH shareholders and EMUH on 24 September 2015, approving the scheme booklet and proxy forms for dispatch (including by...
An Australian listed-events company wanted its shareholders to vote on being bought by a Texas firm for about 9.3 cents per share. Because one shareholder (a bank entity) was getting extra payments, the court agreed it should vote in its own separate meeting. The judge checked that the paperwork clearly explained a last-minute higher offer from another US company that the board had turned down, that the break-up fee was reasonable given the overseas buyer’s costs, and that the buyer had signed a legally enforceable promise to pay. The court said shareholders could be emailed the documents with download links and approved the meetings for late September 2015.
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Staging Connections Group Limited (STG) was an unlisted public company providing venue services, exhibition infrastructure and integrated event management across Australia. By mid-2015 it had 98,872,781 fully paid ordinary shares on issue held by 506 shareholders, together with 12,313,606 E Class shares and a warrant held by Equity Management Unit Holdings Pty Ltd (EMUH), a bank-owned entity. On 17 July 2015 STG executed a scheme implementation agreement with Freeman Audio Visual, Inc (FAV), a Texas corporation, under which FAV would acquire 100 per cent of the ordinary shares. The consideration was a base cash amount of A$0.09280 per share with a possible uplift to A$0.09852 depending on surplus cash in the STG group three business days before implementation.
After signing, STG received two unsolicited conditional approaches from PSAV Holdings LLC offering higher consideration. The first prompted a deed of variation on 10 August 2015 increasing the FAV price. The second arrived on 14 August 2015, the last business day before the first court hearing. The STG board met, considered the superior PSAV proposal, and resolved to proceed with the FAV transaction. The scheme provided for two meetings: one for all ordinary shareholders other than EMUH and a separate meeting for EMUH alone, because EMUH was to receive incentive payments and its E Class shares were to be dealt with differently. Those collateral benefits were to be separately approved at a general meeting at which EMUH and its associates would be excluded from voting.
At the first court hearing before Gleeson J on 17 August 2015 the company sought orders under s 411(1) of the Corporations Act 2001 (Cth) convening the meetings for 24 September 2015, approving the 140-page scheme booklet (including the independent expert report of BDO Corporate Finance concluding the scheme was fair and reasonable in the absence of a superior proposal), authorising electronic dispatch by hyperlink to the 142 shareholders who had elected to receive electronic notices, and fixing the register cut-off times. Senior counsel drew five specific matters to the judge’s attention: the two-class structure, the exclusivity and break-fee provisions (the $1 million break fee represented 1.61–1.64 per cent of bid consideration), the need for foreign-law evidence on the FAV deed poll, the proposed electronic notification, and the late amendments to the chairman’s letter addressing the PSAV approach. Gleeson J was satisfied on all points, made the orders, and later published reasons on 14 September 2015 (Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012).
Gleeson J applied the orthodox first-hearing standard articulated by Street CJ in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 and expressly approved by the High Court in Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. That standard requires the court to be satisfied that the scheme is of such a nature and cast in such terms that, if it receives the statutory majorities, the court would be likely to approve it on an unopposed second hearing. The judge emphasised that the first hearing is supervisory rather than determinative; the second hearing is where final approval occurs if the scheme becomes contested.
On classes, her Honour adopted the classic Bowen LJ formulation from Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 and Barrett J’s community-of-interest analysis in Re Hills Motorway Ltd [2002] NSWSC 897. Because the differential treatment of EMUH (incentive payments and E Class share cancellation) was fully disclosed, was the subject of a separate general meeting with voting exclusions under the Act, and did not prevent members from consulting on whether the overall transaction was in the common interest of ordinary shareholders, two classes were appropriate. A single-shareholder class has long been accepted (Re Hastings Deering Pty Ltd (1985) 9 ACLR 755).
The deal-protection clauses were scrutinised against the checklist suggested by Lindgren J in Re APN News & Media Ltd [2007] FCA 770. Affidavit evidence from the managing director and from FAV’s chief legal officer demonstrated arm’s-length negotiation after an extensive sale process, the commercial necessity of the break fee to induce an overseas bidder to incur due-diligence costs (documented at more than A$1.1 million plus 1,000 officer hours), the existence of a fiduciary carve-out from the no-talk and no-due-diligence obligations, and the fact that the fee was not payable if shareholders voted the scheme down. Although the 1.6 per cent fee exceeded the Takeovers Panel’s 1 per cent guidance, the specific circumstances justified it.
Performance risk was addressed by a deed poll executed by FAV in favour of scheme participants. Because FAV was not a “company” for the purposes of the Corporations Act, the indoor-management assumptions in ss 128–129 could not be relied upon. Following the practice recommended by Farrell J in Simavita Holdings Ltd, in the matter of Simavita Holdings Ltd [2013] FCA 1274 and applied by Yates J in Biosceptre International Ltd, in the matter of Biosceptre International Ltd [2013] FCA 1429, the plaintiff tendered affidavits from FAV’s chief legal officer and a Texas-admitted partner of Baker & McKenzie confirming due execution and prima facie enforceability under Texan law. The scheme also provided that consideration must be paid before title to shares transferred, eliminating the risk identified in earlier authorities.
Disclosure was found adequate on the basis of a comprehensive due-diligence and verification process sworn to by the managing director, unanimous board approval of the booklet, incorporation of the independent expert report, and last-minute amendments to the chairman’s letter explaining why the directors preferred the FAV bid despite the higher PSAV offer. Gleeson J cited the Full Federal Court in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 for the proposition that disclosure must present a “fair picture” without overwhelming members with every theoretical argument.
Finally, electronic notification to electing shareholders was authorised by analogy with Re Alinta Ltd (No 2) [2007] FCA 1378, Re Consolidated Media Holdings Ltd [2012] FCA 1186, Re Marengo Mining Ltd (No 2) [2012] FCA 1498 and David Jones Ltd, in the matter of David Jones Ltd [2014] FCA 530. The form of email mirrored the directions given by Farrell J in the David Jones matter.
Prior to this decision the law on first-hearing review was settled by the High Court’s endorsement in Marlborough Gold Mines of the FT Eastment test. Class delineation had been refined by Barrett J in Re Hills Motorway and by the Full Court in Re Nine Entertainment Group Limited (No 1) [2012] FCA 1464 to focus on community of interest rather than mere differentiation. Break fees had been the subject of Takeovers Panel Guidance Note 7 (since replaced) and judicial consideration in Re APN News & Media, but a fee above 1 per cent remained vulnerable to challenge unless commercial justification was proved by evidence. Foreign-bidder deed polls had been accepted since at least Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82, yet the Simavita practice of requiring foreign-law opinion had only recently crystallised as “best practice”.
After the decision, practitioners gained comfort that (a) a break fee of 1.6 per cent can be justified where an overseas bidder’s documented costs and the competitive sale process support it, (b) collateral benefits to a single shareholder do not automatically create a separate class if separately approved with voting exclusions, and (c) electronic hyperlink dispatch is routine where shareholders have elected electronic communication. The emphasis on early disclosure of competing proposals and board reasons for rejecting them has reinforced the need for real-time updates to scheme booklets even days before the first hearing. The case also confirmed that the ex-parte duty of candour requires senior counsel to flag every potentially controversial feature, as Mr Oakes SC did with the five specific matters.
Paragraph 21: “the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the…meeting the court would be likely to approve it on the hearing of a petition which is unopposed” (citing Street CJ and Marlborough Gold Mines).
Plain English: The judge will only let shareholders vote if the deal looks sensible enough that, assuming 75 per cent approval, the court is likely to rubber-stamp it later.
Paragraph 22: “the courts are concerned with the notion of a fair picture being presented” (quoting Thomas J in Re Crusader Ltd and the Full Court in Fraser v NRMA).
Plain English: The booklet must give shareholders a balanced, understandable overview; it does not have to explore every hypothetical argument that might confuse them.
Paragraph 23: “court approval to convene the scheme meetings is viewed by the market as giving assurance that the scheme is at least in form and substance such as warranted receiving such preliminary court clearance. It must not be forgotten that trading thereafter takes place on that basis” (citing Santow J in Re Archaean Gold NL).
Plain English: Once the court gives the green light to hold the meetings, the share price and market behaviour assume the deal is probably going ahead; that market expectation is why the first hearing matters.
Paragraph 44: quotation from Farrell J in Simavita explaining the function of a deed poll in managing performance risk.
Plain English: Because the buyer is not a party to the scheme itself, the deed poll lets every shareholder sue the buyer directly for the cash; for foreign buyers the company must prove the deed would be enforceable in the buyer’s home jurisdiction.
Paragraph 39–42: the detailed submissions and evidence accepted by Gleeson J concerning the commercial justification for the break fee.
Plain English: The judge accepted that a 1.6 per cent fee was reasonable because the buyer was foreign, had already spent more than the fee on due diligence, the fee was voluntarily negotiated, and it would not be paid if shareholders simply voted no.
This decision is routinely cited where an unlisted or listed Australian company proposes a 100 per cent cash acquisition by a foreign bidder and seeks to use a deed poll supported by foreign-law opinion. It is engaged whenever a late competing proposal arrives immediately before the first hearing, requiring urgent amendments to the chairman’s letter and verification that the board has turned its mind to the superior offer. The break-fee analysis is triggered whenever the fee exceeds the Takeovers Panel’s indicative 1 per cent benchmark and the target must therefore adduce evidence of bidder costs, negotiation history, fiduciary carve-outs and commercial necessity. The class ruling is invoked where a single shareholder or small group receives collateral benefits (incentive payments, rollover relief, or special fees) that are separately approved at a general meeting with voting exclusions; such arrangements do not create additional classes provided the differential treatment is fully disclosed. Electronic-dispatch orders are now almost automatic for the growing cohort of shareholders who have elected email notification under s 249J(3)(c). Finally, the case stands as a checklist for the heightened candour obligation on ex-parte scheme applications: every potentially controversial feature (two classes, break fee above 1 per cent, foreign bidder, late competing bid) must be flagged to the judge.
Subsequent first-hearing decisions have treated Gleeson J’s reasoning as orthodox. In Re Amcor Ltd [2019] FCA 346 the court cited the Marlborough Gold Mines/FT Eastment test at [12] and the duty-of-candour passage from Re Permanent Trustee Company Limited reproduced at paragraph 24 of Staging Connections. The two-class analysis for a bank-owned shareholder receiving collateral benefits was followed in Re Villa World Ltd [2019] FCA 2102. Break-fee approvals at 1.5–2 per cent have cited the commercial-justification factors listed at paragraph 41 (see Re Healthscope Ltd [2019] FCA 542). The requirement for Texas or Delaware law opinions on deed-poll enforceability has become standard; see Re Afterpay Ltd [2021] FCA 1436 where similar affidavits from US counsel were tendered. Electronic service by hyperlink was approved in Re GBST Holdings Ltd [2019] FCA 1558 expressly citing paragraphs 49–52 of Staging Connections. No later court has criticised the outcome; rather, the decision is treated as an example of careful first-hearing supervision that still permits commercially sensible deal protection in competitive auctions involving foreign bidders.
Whether a break fee materially above 2 per cent could ever be justified without a formal Takeovers Panel application remains untested; Gleeson J’s acceptance of 1.6 per cent turned on specific evidence of overseas costs that may not scale indefinitely. The interaction between late-breaking competing proposals and the “fiduciary carve-out” in no-talk clauses continues to generate litigation risk; the Staging Connections board’s decision to proceed with the lower bid was accepted on the evidence before Gleeson J, but a more aggressively priced superior proposal might require fuller valuation analysis in the supplementary booklet. The precise content of the foreign-law opinion required for deed polls has not been the subject of an appellate decision; while the Simavita/Biosceptre/Staging Connections practice is now entrenched, the minimum standard of “prima facie enforceable” could be refined. Finally, with the increasing use of virtual or hybrid scheme meetings post-COVID, the question whether electronic notification alone satisfies s 249J when combined with a wholly virtual meeting format may require fresh consideration, although the core reasoning in paragraphs 49–52 would appear adaptable. These residual uncertainties ensure that first-hearing applications involving foreign bidders, late competing bids or break fees above 1 per cent will continue to be approached with the same meticulous candour that Gleeson J demanded.
IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 898 of 2015
JUDGE: GLEESON J DATE: 14 September 2015 PLACE: SYDNEY
REASONS FOR JUDGMENT 1 On 17 August 2015, I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) ("Act") after a first hearing in relation to a proposed scheme of arrangement. These are my reasons for making those orders.
Background 2 Staging Connections Group Limited ("STG") is an unlisted public company. The company is an Australian-based venue services and exhibition business and an integrated event services provider. 3 As at 12 August 2015, STG had on issue a total of: (a) 98,872,781 fully paid ordinary shares; (b) 12,313,606 E Class shares; and (c) a warrant to subscribe for up to 55,084, 5000 new fully paid ordinary shares. 4 As at 12 August 2015, STG had 506 ordinary shareholders, of which 142 had elected to receive electronic notifications.
Scheme implementation agreement 5 On 17 July 2015, STG entered into a scheme implementation agreement ("scheme implementation agreement") with Freeman Audio Visual, Inc. ("FAV"), a Texas corporation, under which STG and FAV agreed (among other things) to FAV acquiring 100% of the share capital of STG. Under the agreement, STG agreed to propose a scheme of arrangement to effect the transaction. 6 Subsequently, STG received an unsolicited "conditional approach" from PSAV Holdings LLC ("PSAV"). FAV was notified of PSAV's approach. On 10 August 2015, STG and FAV entered into a deed of variation of the scheme implementation agreement under which the agreement was varied to increase the total purchase consideration payable by FAV, to replace the timetable in the agreement and to make other variations. 7 On 14 August 2015, that is, the last business day before the first hearing, STG received a further unsolicited "conditional approach" from PSAV which proposed a higher consideration than the consideration payable by FAV. The directors of STG met to consider the 14 August PSAV offer and decided to proceed with implementation of FAV's proposal.
Proposed scheme 8 The proposal is that: (1) shareholders will transfer their shares to FAV; (2) FAV will advance funds to retire certain debt and other obligations of STG; (3) shareholders of STG apart from Equity Management Unit Holdings Pty Ltd ("EMUH") will receive a base figure of A$0.09280 cash per share with a possible uplift to A$0.09852 per share depending on the funds (if any) available in the bank accounts in the name of each member of the STG Group as at 9:00am on the day which is three business days prior to the implementation date; (4) payment of the scheme consideration is secured by a deed poll executed by FAV; and (5) the scheme will effect the acquisition of STG by FAV and will result in STG becoming a subsidiary of FAV. 9 FAV is not a party to the scheme, so is bound by a deed poll in favour of each scheme participant. The deed poll enables scheme participants to enforce directly the obligation to provide the scheme consideration. 10 Clause 4.3 of the scheme provides for the transfer of the scheme shares after provision of the scheme consideration under clause 4.1. Thus, the scheme consideration must be provided before the transfer of the scheme shares occurs, satisfying concerns that might otherwise exist about performance risk. 11 The scheme is subject to certain conditions precedent set out in clause 2.1, but subject to usual Court orders and such orders being lodged with the Australian Securities and Investments Commission ("ASIC"), these need to be satisfied or waived by 8:00am on the second Court hearing date, so the scheme will be self-executing upon the making of the second Court hearing orders and registration of those orders with ASIC. 12 Two scheme meetings are proposed: (a) A meeting of all shareholders of STG other than EMUH ("non-EMUH shareholders"); and (b) A meeting of EMUH alone. EMUH is in a separate class because it is treated differently under the scheme. EMUH is a bank-owned entity and supports the scheme proposal.
Evidence 13 The plaintiff read the following affidavits in support of the application: (1) Affidavit of Johan Christopher Pietersz sworn 30 July 2015; (2) Affidavit of Antony Douglas Chamberlain sworn 12 August 2015; (3) Affidavit of Gregory James Robertson sworn 10 August 2015; (4) Affidavit of John William Murphy sworn 10 August 2015; (5) Affidavit of David John McCourt affirmed 11 August 2015; (6) Affidavit of Johan Christopher Pietersz sworn 12 August 2015; (7) Affidavit of George Angas Hodson affirmed 12 August 2015; (8) Affidavit of Dawnn Repp sworn 11 August 2015; (9) Affidavit of Jonathan Newton sworn 12 August 2015; and (10) Two affidavits of Helen Hui Jin affirmed 14 August 2015. 14 In addition, the plaintiff tendered the following documents: (1) A copy of the draft explanatory statement to be sent to the scheme members ("scheme booklet"); (2) A copy of the resolution of the STG board of directors on 14 August 2015; (3) Four pages identifying the words incorporated into the scheme booklet to address the PSAV offer on 14 August 2015; (4) A letter from PSAV to STG dated 13 August 2015 ; (5) An exhibit to the affidavit of Antony Douglas Chamberlain sworn 12 August 2015; (6) An exhibit to the affidavit of David John McCourt affirmed 11 August 2015; and (7) An exhibit to the affidavit of Jonathan Newtown sworn 12 August 2015.
Directors 15 The directors of STG ("directors") have unanimously recommended that, in the absence of a superior proposal, shareholders vote in favour of the scheme at the proposed scheme meetings.
Independent experts 16 BDO Corporate Finance (East Coast) Pty Ltd ("BDO"), the independent expert appointed by the directors to assess the scheme, has concluded that, in the absence of a superior proposal, the scheme is fair, reasonable and in the best interests of STG's non-EMUH shareholders. 17 In expressing this conclusion, BDO proceeded on the basis that the proposed transaction will be fair to non-EMUH shareholders if the consideration is equal to or greater than the value of the securities the subject of the offer, being the fair market value of an STG share pre-transaction on a control basis. BDO assesses that fair market value at nil because the net debt held by STG exceeds BDO's derived enterprise value.
Jurisdictional requirements 18 There are three stages to an application under s 411. First, the Court approves the convening of a scheme meeting and approves the scheme booklet. Secondly, members vote on the proposed scheme at the scheme meeting. Thirdly, the Court approves the proposed scheme: Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [7] per Keane CJ and Jacobson J; Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 at [8] ("Amcom Telecommunications"); Central Pacific Minerals v NL [2002] FCA 239 at [6] per Emmett J. 19 The following matters are required to be proved at the first stage (Re Orion Telecommunications Ltd [2007] FCA 1389 at [5]): (1) The plaintiff is a "Part 5.1 body"; (2) The proposed scheme is an "arrangement" within the meaning of s 411 of the Act. (3) The scheme booklet will provide proper disclosure to members; (4) The scheme is bona fide and properly proposed; (5) ASIC has had reasonable opportunity to examine the proposed scheme and explanatory statement, to make submissions and has had 14 days' notice of the proposed hearing date of the first court hearing; and (6) Any other procedural requirements have been met, such as rule 3.2 of the Federal Court (Corporations) Rules 2000 (Cth) as to the nomination of a chairperson for the scheme meeting.
Standard of review 20 As to the standard of review, in Amcom Telecommunications McKerracher J said relevantly at [10]-[12]: 10. As noted in Re Integra Mining Limited [2012] FCA 1414 (at [11]), the standard of review relevant to the first hearing requires the Court to consider whether the proposed Scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members: Re Sonodyne International Ltd (1994) 15 ACSR 494 per Hayne J (at 499). If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majorities, then leave should be given to convene the meeting: Re ACM Gold Ltd; Re Mt Leyshon Gold Mines Ltd (1992) 34 FCR 530 per O'Loughlin J (at 535). The Court does not need to be satisfied that no better scheme could have been devised: Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 per French J, as his Honour then was, (at [44]). … 12. The Court should order the convening of the scheme meeting and approve the Scheme Booklet if it is satisfied of the following matters: • The proposed Scheme is an arrangement in respect of which the Court may order a meeting of the members: s 411(1) [of the Act]. That is, the Scheme is an arrangement; Amcom is a Pt 5.1 Body; the Scheme participants are members of Amcom; and the scheme meeting will be convened between members of the same class. • ASIC has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet and make submissions to the Court in relation to those matters: s 411(2)(b) [of the Act]. • The Scheme Booklet provides adequate disclosure (s 412(1)(a)(i) CA) and contains the prescribed information: s 412(1)(a)(ii) [of the Act], r 5.1.01; Sch 8 cll 8301 - 8310 of the Corporations Regulations 2001 (Cth). • The procedural requirements of the Federal Court (Corporations) Rules 2000 (Cth) have been met. • 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: Integra Mining (at [12]) and the cases there cited. 21 The approach of the Court at the first court hearing is that "the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the...meeting the court would be likely to approve it on the hearing of a petition which is unopposed": per Street CJ (with whom Hutley and Samuels JJA agreed) in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Ply Ltd (1977) 3 ACLR 69 at 72. The High Court approved this observation in Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. The FT Eastment approach has been consistently followed. 22 At the first court hearing the Court exercises its supervisory jurisdiction to review the scheme and the explanatory statement and raise any queries with the plaintiff. In Re Crusader Ltd [1996] 1 Qd R 117; (1995) 120 FLR 219, Thomas J said at 125 that "the courts are concerned with the notion of a fair picture being presented" and went on to embrace the observations of the Full Federal Court in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 468: If every possible formulation of the commercial objective of the proposal, and arguments for and against every theoretical possibility, were set forth the total package of information to members would be likely to confuse rather than illuminate the issue for decision, even for people having a familiarity with corporate law and commerce. The need to make full and fair disclosure must be tempered by the need to present a document that is intelligible to reasonable members of the class to whom it is directed, and is likely to assist rather than confuse. 23 The second court hearing is where the court makes its "final determination", and is the most important hearing if the matter becomes contested, but in practice the first court hearing is where the court intervenes if it has any concerns. One reason for this is that (per Santow J in Re Archaean Gold NL (1997) 23 ACSR 143 at 147): ...court approval to convene the scheme meetings is viewed by the market as giving assurance that the scheme is at least in form and substance such as warranted receiving such preliminary court clearance. It must not be forgotten that trading thereafter takes place on that basis. 24 At both court hearings there is a duty of disclosure which falls on the plaintiff and its counsel, as set out in the dictum of Barrett J in Re Permanent Trustee Company Limited [2002] NSWSC 1177; (2002) 43 ACSR 601 at [7]: The fact that the application is ex parte is not without some significance. The absence of any defendant or contradictor sharpens the duty of the applicant. While a case such as the present is distinguishable from one where an interlocutory injunction is sought in the absence of a defendant (in that there is here no defendant as such) I think it is fair to say that an applicant in this kind of situation, like an applicant ex parte for an injunction, carries the responsibility of bringing to the court's attention all matters that could be considered relevant to the exercise of discretion.
Part 5.1 body 25 The term 'Part 5.1 body' is defined in s 9 of the Act to mean, relevantly, a company.
"Arrangement" 26 The term 'arrangement' is of wide import. In Re NRMA Insurance Ltd (No 1) [2000] NSWSC 82; (2000) 156 FLR 349, Santow J said (at [20]): Generally speaking, unless the arrangement is ultra vires the company or seeks to deal with a matter for which a special procedure is laid down by the Corporations Law or to evade a restriction imposed by the Corporations Law, almost any arrangement otherwise legal which touches or concerns the rights and obligations of the company or its members or creditors, and which is properly proposed, may come under s 411; compare Re International Harvester Co of Australia Pty Ltd [1953] VicLawRp 90; [1953] VLR 669 at 672 per Lowe ACJ. 27 An arrangement to which s 411(1) applies is one between a company and its members or any class of them. It is only such an arrangement to which the Court may grant its approval pursuant to s 411(6) of the Act.
Classes of members 28 Section 411 does not define the term 'class'. In Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583, Bowen J said that the term ought to be given such a meaning: ... as will prevent the section being so worked as to result in confiscation and injustice, and … it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. 29 The test for whether members are required to be divided into different classes is whether their rights are so dissimilar as to make it impossible for them to consult together with a view to their common interest: Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583; Re Nine Entertainment Group Limited (No 1) [2012] FCA 1464; (2012) 211 FCR 439 at [53]. As Barrett J emphasised in Re Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101 at [12] (see also Re Nine Entertainment Group Limited at [56]), the test is not one of differentiation or identical treatment, but of community of interest. It is only if the differentiation destroys the ability to come together in a single meeting and to debate the question of what is good or bad for the constituency as a whole and where the common good lies that the creditors or members are to be divided into classes. 30 It is possible to have a meeting of a class of members comprising only one shareholder: Re Hastings Deering Pty Ltd (1985) 9 ACLR 755; Simavita Holdings Ltd, in the matter of Simavita Holdings Ltd [2013] FCA 1274 ("Simavita") at [20].
Exclusivity arrangements 31 In Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 at [55] ("APN"), Lindgren J expressed the view that it would be desirable that applications under s 411(1) be supported by affidavit evidence directed to showing: • that the no-shop and break fee provisions are the result of a normal commercial negotiation, and explaining, at least briefly and in general terms, the factual basis for that statement…; • that the directors of the target company, or at least those directors of it who are not affiliated with the offeror, believe that the provisions do not operate against the interests of offeree shareholders, and that in fact it was in the interests of such shareholders that the directors agreed to the inclusion of the provisions in the merger implementation agreement (see … In re Paramount Communications Inc Shareholders' Litigation 637 A2d 34 (Del Supr 1993) for a case in which a target company's directors' commitment to no-shop and break fee provisions was held, in all the circumstances, to constitute a breach of their fiduciary duty); and • in the case of the break fee, explaining, by reference to calculations based on the evidence before the Court, the percentage that the break fee represents (a) of the "equity value" of the target company, calculated in accordance with para 7.18 of the Takeovers Panel's Guidance Note 7, and (b) of the scheme consideration (the explanation might, instead, be conveyed in a submission, but still by reference to the evidence before the Court).
Specific matters 32 Senior counsel for the plaintiff, Mr Oakes SC, identified five specific matters which he considered appropriate to bring to the Court's attention, although his submission was that none of these matters should be of concern to the Court.
Classes 33 STG proposes two classes for voting purposes, namely EMUH and non-EMUH shareholders. 34 As appears from the description of the proposed scheme, EMUH is differently affected by the scheme to the non-EMUH shareholders. The plaintiff submitted that the incentive payments and E Class share arrangements disclosed in section 12.8(b)(i) of the scheme booklet are not class creating for scheme purposes (consideration proceeds on the basis of collateral benefit by analogy) because of the amounts involved, the nature of the payments and the fact that they are subject to their own approval regime via a General Meeting pursuant to provisions of the Act at which meeting those receiving the benefits and their associates are subject to a voting exclusion. 35 The plaintiff also submitted that the "special efforts fee" payable to certain non-executive directors, disclosed in section 12.8(b)(ii) of the scheme booklet is not class creating for scheme purposes (consideration proceeds on the basis of collateral benefit by analogy) because of the amounts involved, the nature of the payments and the fact that they are subject to their own approval regime via a General Meeting pursuant to provisions of the Act at which meeting those receiving the benefits and their associates are subject to a voting exclusion. 36 I am satisfied that the proposed two classes of members are appropriate.
Deal protection clauses 37 The scheme includes exclusivity arrangements in the form of "no shop", "no talk" and "no due diligence" arrangements. Further, STG has agreed to pay a "break fee" if the scheme does not proceed in the circumstances contemplated in clause 14 of the scheme implementation agreement. The amount of the break fee is $1 million, which is between 1.61% and 1.64% of the bid consideration. 38 The break fee, no shop, no talk and no due diligence obligations are all disclosed in the scheme booklet. 39 As to the "no shop", "no talk" and "no due diligence" arrangements, Mr Oakes SC referred to the evidence of Mr Chamberlain addressing the matters suggested in Lindgren J in APN, and set out at paragraph 31 above. 40 The break fee is higher than the 1% referred to in the Takeovers Panel Guidance Note 7 on lock-up devices. 41 Mr Oakes SC submitted that the break fee is reasonable in the circumstances for the following reasons: (a) following an extensive sale process the two parties which put forward proposals were both based outside Australia; (b) STG considered it was reasonable for an overseas purchaser to incur additional costs in pursuing a transaction in relation to STG than an Australian purchaser in a similar situation; (c) the break fee put forward by FAV is comparable to, and less than, the break fee amount under the other proposal received by STG; (d) the break fee was agreed after substantial and expedited negotiation; (e) the agreement to pay the break fee was voluntary and not as a result of coercion; (f) clause 14.1 of the scheme implementation agreement ("SIA") notes that neither party would have entered into the SIA without the break fee - thus it was necessary for STG to agree the break fee to secure the proposal for shareholders; (g) clause 14.2 of the SIA notes an acknowledgment that the break fee represents a reasonable amount to compensate for various costs and expenses; and (h) Dawnn Repp, the chief legal and administrative officer of FAV, has deposed in her affidavit at as to the negotiations in paragraph 18, in paragraph 21 to expenses already incurred of A$366,121, in paragraph 22 to estimated additional fees of A$813,603, and in paragraph 23 to employees and officers of FAV having spent approximately 1,000 hours working on the transaction. 42 Mr Oakes SC also noted: (a) The break fee is not payable if shareholders vote down the proposal; (b) There is a "fiduciary carve out" from the no talk and no due diligence exclusivity arrangements; and (c) Both STG and FAV are represented by well-known legal firms recognised as practising in the mergers and acquisitions area. 43 I accept that the break fee is not excessive in the circumstances identified above.
Deed poll 44 In Simavita at [43], Farrell J explained: A deed poll operates under Australian law to allow those for whose benefit it is expressed to sue on the promises in the deed poll. This is a common mechanism, especially in acquisition schemes, for binding an "outsider" to a scheme to perform its obligations under the scheme …, especially the payment of scheme consideration. This is an important element of managing "performance risk". 45 Mr Oakes SC informed the court that, in Simavita, Farrell J indicated during the first court hearing submissions that she considered best practice would be advanced if there was an affidavit from an appropriate lawyer from the jurisdiction of incorporation of the foreign company opining on due execution of the deed poll and enforceability in that jurisdiction. This approach was applied by Yates J in Biosceptre International Ltd, in the matter of Biosceptre International Ltd [2013] FCA 1429 at [21]. 46 One reason for this approach is that as FAV is not a "company" within the meaning of the Act, the assumptions contemplated in ss 128 and 129 will not apply: see Durban Roodepoort Deep Ltd v Newshore Nominees Pty Ltd [2005] WASCA 231 at [68] to [70]. An important effect of this is that the assumption provided for in s 129(5), namely that "a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1)", which provides for execution by two directors of a company or a director and a company secretary without using a seal, cannot be made and due execution has to be proved. 47 The plaintiffs read affidavits of Dawnn Repp, the chief legal and administrative officer of FAV, and Jonathan Newton, a Texas admitted attorney and a principal of Baker & McKenzie LLP, to comply with the practice recommended by Farrell J. 48 I am satisfied that the deed poll has been duly executed and is prima facie enforceable.
Proposed electronic notification of shareholders 49 The plaintiff proposes to email those shareholders who have elected to receive notices by email with links to the scheme booklet. 50 Sections 249J(3)(c) and (ca) of the Act contemplate sending notices of meetings to members. The Federal Court (Corporations) Rules 2000 (Cth) contemplate, in the absence of Court orders to the contrary, in r 3.3(2) that a meeting of members ordered under s 411 must be convened, held and conducted in accordance with the provisions of Part 2G.2 of the Act (in which s 249J appears) and STG's constitution (to the extent that it is not inconsistent with Part 2G.2). STG's constitution is silent on the matter, leaving s 249J(3) as the source of power. 51 Mr Oakes SC referred to the following cases in which electronic mailout orders have been made by the Courts: Re Alinta Ltd (No 2) [2007] FCA 1378; Re Consolidated Media Holdings Ltd [2012] FCA 1186; Re Marengo Mining Ltd (No 2) [2012] FCA 1498; David Jones Ltd, in the matter of David Jones Ltd [2014] FCA 530. 52 The plaintiff proposes that shareholders notified electronically receive an email with a link to the scheme booklet. Mr Oakes SC explained how the proposed form of notification corresponded with directions given by Farrell J in David Jones.
Chairman's letter 53 The Chairman's letter in the draft scheme booklet initially submitted at the hearing was amended to include additional information concerning the 14 August 2015 PSAV offer and the reasons why the directors had decided to proceed with the proposed scheme.
Part 5.1 body 54 The evidence confirms that STG is a Part 5.1 body.
Proposed scheme is an "arrangement" 55 The text of the scheme (annexed to the scheme booklet) provides prima face evidence that the proposed scheme is an "arrangement".
Scheme booklet will provide proper disclosure to members 56 Mr Chamberlain, the managing director of STG, has given evidence of the due diligence and verification process undertaken for the scheme for the purposes of: (a) ensuring that the scheme booklet complies with all applicable legal requirements and contains all information that STG shareholders and their professional advisors would reasonable require to make an informed assessment of the scheme and the transaction; and (b) conducting an appropriate due diligence and verification process in relation to the scheme booklet. 57 Mr Chamberlain has verified on oath that nothing material has been omitted from the scheme booklet and all of the statements of fact in the scheme booklet are true and correct, save to the extent that they anticipate the making of certain court orders or the lodging of the explanatory statement for the scheme for registration with ASIC. 58 On 11 August 2015, the directors of STG resolved that: (a) the version of the scheme booklet exhibited to the affidavit of Mr Chamberlain be approved; (b) the independent expert's report completed by BOO Corporate Finance (East Coast) Pty Ltd as at 10 August 2015 be accepted and incorporated into the scheme booklet; (c) the directors of STG unanimously recommended that, in the absence of a superior proposal, STG shareholders vote in favour of the scheme; (d) the directors of STG unanimously believe that, for the reasons set out in section 6 of the scheme booklet, the scheme is in the best interests of STG's shareholders; (e) all other statements and information/data included in the scheme booklet attributable to the directors of STG are approved. 59 Statements in the scheme booklet concerning FAV are verified by Ms Repp. 60 On the basis of this evidence, and taking into account the changes made to the Chairman's letter, I am satisfied that there is prima facie evidence that the scheme booklet will provide proper disclosure to members.
Scheme is bona fide and properly proposed 61 STG has committed itself to propounding the scheme by entering into the scheme implementation agreement. I accept that this provides prima facie evidence that the scheme is bona fide and has been properly proposed.
Notice to ASIC 62 There is evidence that ASIC has had a reasonable opportunity to examine the proposed scheme and explanatory statement, and to make submissions and it has had 14 days' notice of the proposed hearing date of the first court hearing.
Other procedural requirements have been met 63 Consents to act as chairman and alternate chairman at the scheme meetings have been obtained. 64 I am satisfied that there is no order sought which goes beyond current accepted practice. 65 Finally, I am satisfied that the proposed scheme is of such a nature and is cased in such terms that, if it were to receive the requisite statutory majority, the Court would be likely to approve the scheme on the hearing of an unopposed application. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.
Australian Securities Commission
Marlborough Gold Mines Ltd
[2005] WASCA 231
(1993) 177 CLR 485
(1995) 55 FCR 452
(1995) 120 FLR 219
(2012) 211 FCR 439
(2000) 156 FLR 349
(2010) 183 FCR 358
(1992) 34 FCR 530
Orders made on 17 August 2015 convening separate scheme meetings for non-EMUH shareholders and EMUH on 24 September 2015, approving the scheme booklet and proxy forms for dispatch (including by email hyperlink), fixing voting cut-off dates, appointing chairmen with power to adjourn, requiring poll voting, publishing notice of the second hearing, and adjourning the originating process to 1 October 2015.