Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (Act), the Plaintiff convene and hold:
(a) a meeting of the holders of ordinary shares in the Plaintiff (other than Village Roadshow Corporation Pty Ltd (ACN 004 318 610) (VRC), Robert Kirby, Graham Burke and John Kirby and any closely related party of any of them) (Structure A VRL Shareholders):
(i) to consider and, if thought fit, to approve (with or without modification) the scheme of arrangement (Structure A Scheme) proposed to be made between the Plaintiff and Structure A VRL Shareholders, the terms of which are set out in Annexure A to these orders; and
(ii) to be held at 11.00am (Melbourne time) on Thursday, 26 November 2020 and to be conducted electronically through an online platform (which is to be accessed in accordance with the instructions included in the Notice of Structure A Scheme Meeting which is set out in Appendix 4 to the Scheme Booklet (Notice of Structure A Scheme Meeting) and is to be sent to Structure A VRL Shareholders in accordance with Order 2 below) ,
(Structure A Scheme Meeting); and
(b) a meeting of the holders of ordinary shares in the Plaintiff (Structure B VRL Shareholders):
(i) to consider and, if thought fit, to approve (with or without modification) the scheme of arrangement (Structure B Scheme) proposed to be made between the Plaintiff and Structure B VRL Shareholders, the terms of which are set out in Annexure B to these orders; and
(ii) to be held at 12.00 noon (Melbourne time) on Thursday, 26 November 2020 or at the conclusion or adjournment of the Structure A Scheme Meeting (whoever is later) and to be conducted electronically through an online platform (which is to be accessed in accordance with the instructions included in the Notice of Structure B Scheme Meeting which is set out in Appendix 7 to the Scheme Booklet (Notice of Structure B Scheme Meeting) and is to be sent to Structure B VRL Shareholders in accordance with Order 2 below),
(Structure B Scheme Meeting),
(together the Structure A Scheme Meeting and the Structure B Scheme Meeting are referred to in these Orders as the Scheme Meetings, and together the Structure A VRL Shareholders and the Structure B VRL Shareholders are referred to in these Orders as the VRL Shareholders).
The Scheme Meetings be convened by sending on or before 21 October 2020:
(a) in the case of VRL Shareholders who have elected to receive notices of meetings electronically by email (Email Shareholders), an email substantially in the form at Annexure 'PCT39' to the affidavit of Peter Charles Tonagh dated 7 October 2020 (Tonagh Affidavit), which includes access by an embedded link to the following documents:
(i) an electronic copy of a document substantially in the form of the scheme booklet, a draft of which is at Exhibit 'BFO11' (Scheme Booklet) to the affidavit of Bart Oude-Vrielink dated 9 October 2020 (Third Oude-Vrielink Affidavit), which contains, among other things, the Notice of Structure A Scheme Meeting and Notice of Structure B Scheme Meeting; and
(ii) for Structure A VRL Shareholders:
A. a personalised Proxy Form in respect of the Structure A Scheme Meeting, substantially in the form at Annexure 'PCT11' to the Tonagh Affidavit (Structure A Proxy Form); and
B. a personalised Election Form in respect of the Structure A Scheme, substantially in the form at pages 402 to 403 of Annexure 'BFO13' to the Third Oude-Vrielink Affidavit (Structure A Election Form);
(iii) for Structure B VRL Shareholders:
A. a personalised Proxy Form in respect of the Structure B Scheme Meeting, substantially in the form at Annexure 'PCT12' to the Tonagh Affidavit (Structure B Proxy Form); and
B. a personalised Election Form in respect of the Structure B Scheme, substantially in the form at pages 404 to 405 Annexure 'BFO13' to the Third Oude-Vrielink Affidavit (Structure B Election Form);
(iv) an online portal or website that is accessible by the Email Shareholder and which enables the Email Shareholder to lodge their proxy for the Scheme Meetings and voting instructions online; and
(v) an email address to which Email Shareholders can return their Structure A Election Forms and Structure B Election Forms by email;
(b) in the case of VRL Shareholders who are not Email Shareholders (Postal Shareholders) and whose registered address is in Australia, the following documents by prepaid post addressed to the relevant addresses recorded in the Plaintiff's register:
(i) a letter substantially in the form at Annexure 'PCT40' to the Tonagh Affidavit, which contains the address of a website which enables Postal Shareholders to access the Scheme Booklet, an online portal or website that is accessible by the Postal Shareholder and which enables the Postal Shareholder to lodge their proxy for the Scheme Meetings and voting instructions online, access their personalised Structure A Election Form and Structure B Election Form and an email address to which Postal Shareholders can return their Structure A Election Forms and Structure B Election Forms by email (Postal Shareholder Letter);
(ii) an extract of the Scheme Booklet comprising of the 'Letter from the Chairman of the Independent Board Committee', substantially in the form at pages 17 to 25 of Exhibit 'BFO11' to the Third Oude-Vrielink Affidavit (Letter from the Chairman of the IBC);
(iii) for Structure A VRL Shareholders:
A. a personalised Structure A Proxy Form; and
B. a personalised Structure A Election Form;
(iv) for Structure B VRL Shareholders:
A. a personalised Structure B Proxy Form; and
B. a personalised Structure B Election Form;
(v) two reply paid envelopes for the return of that VRL Shareholder's:
A. Structure A Proxy Form and Structure B Proxy Form; and
B. Structure A Election Form and Structure B Election Form;
(c) in the case of Postal Shareholders and whose registered address is outside Australia, the following documents by prepaid airmail post addressed to the relevant addresses recorded in the Plaintiff's register:
(i) a Postal Shareholder Letter;
(ii) the Letter from the Chairman of the IBC;
(iii) for Structure A VRL Shareholders:
A. a personalised Structure A Proxy Form; and
B. a personalised Structure A Election Form;
(iv) for Structure B VRL Shareholders:
A. a personalised Structure B Proxy Form; and
B. a personalised Structure B Election Form;
(v) two self-addressed envelopes for the return of that VRL Shareholder's:
A. Structure A Proxy Form and Structure B Proxy Form; and
B. Structure A Election Form and Structure B Election Form; and
(d) in the case of VRL Shareholders who are Email Shareholders and who VRC or VRG BidCo Pty Ltd (ACN 642 862 422) (BidCo) (as applicable) consider or reasonably believe are a 'relevant foreign resident' for the purposes of subdivision 14-D to schedule 1 of the Taxation Administration Act 1953 (Cth) (Relevant Foreign Resident Email Shareholders), an email substantially in the form at Annexure 'PCT41' to the Tonagh Affidavit, which includes access by an embedded link to the following documents:
(i) the documents specified in Order 2(a) above;
(ii) for Structure A VRL Shareholders, a personalised Foreign Resident Declaration Form in respect of the Structure A Scheme, substantially in the form at Annexure 'PCT15' to the Tonagh Affidavit (Structure A Foreign Resident Declaration Form);
(iii) for Structure B VRL Shareholders, a personalised Foreign Resident Declaration Form in respect of the Structure B Scheme, substantially in the form at Annexure 'PCT16' to the Tonagh Affidavit (Structure B Foreign Resident Declaration Form);
(e) in the case of VRL Shareholders who are Postal Shareholders and who VRC or BidCo (as applicable) consider or reasonably believe are a 'relevant foreign resident' for the purposes of subdivision 14-D to schedule 1 of the Taxation Administration Act 1953 (Cth) (Relevant Foreign Resident Postal Shareholders), a letter substantially in the form of Annexure 'PCT42' to the Tonagh Affidavit, and the following documents by prepaid airmail post addressed to the relevant addresses recorded in the Plaintiff's register:
(i) the documents specified in Order 2(b) or 2(c) (as applicable) above;
(ii) for Structure A VRL Shareholders, a personalised Structure A Foreign Resident Declaration Form;
(iii) for Structure B VRL Shareholders, a personalised Structure B Foreign Resident Declaration Form;
(iv) a reply paid or self-addressed envelope (as applicable) for the return of that Relevant Foreign Resident Postal Shareholder's Structure A Foreign Resident Declaration Form and Structure B Foreign Resident Declaration Form.
If it comes to the attention of the Plaintiff that any email dispatched to Email Shareholders in accordance with Order 2(a) above or Relevant Foreign Resident Email Shareholders in accordance with Order 2(d) above has returned an undeliverable or undelivered receipt for an Email Shareholder's or Relevant Foreign Resident Email Shareholder's (as applicable) nominated email address, then the Plaintiff shall dispatch to that Email Shareholder or Relevant Foreign Resident Email Shareholder (as applicable) within a reasonable time thereafter a Postal Shareholder Letter together with the specified documents in accordance with Order 2(b), 2(c) or 2(e) above (as applicable).
Subject to these Orders and pursuant to sections 411(1) and 1319 of the Act:
(a) the Scheme Meetings are to be convened using the notices of meeting substantially in the form contained in Appendix 4 to the Scheme Booklet for the Structure A Scheme Meeting and substantially in the form of the Notice of Structure A Scheme Meeting and the Notice of Structure B Scheme Meeting respectively, without specifying a physical location for the meetings; and
(b) the Scheme Meetings are to be held and conducted electronically, without any physical meeting of VRL Shareholders being held, pursuant to the arrangements for attending, participating and voting described in the Notice of Structure A Scheme Meeting and the Notice of Structure B Scheme Meeting respectively provisions of those Notices relating to the appointment and revocation of proxy and attorney appointments and in respect of the effect of a VRL Shareholder's attendance at a Scheme Meeting on a proxy or attorney appointment by that VRL Shareholder;
(c) at the Structure A Scheme Meeting, Structure A VRL Shareholders are to be permitted to submit questions, and at the Structure B Scheme Meeting Structure B VRL Shareholders are to be permitted to submit questions, in the manner provided on the website, subject to the functions and powers of the Chair under the Plaintiff's Constitution and the general law; and
(d) notwithstanding clause 51.8 of the Plaintiff's Constitution and section 249Y(3) of the Act, the appointment of a proxy in respect of the Structure A Scheme Meeting or the Structure B Scheme Meeting shall not be revoked or suspended by the appointing VRL Shareholder (Appointor) attending and taking part in the Scheme Meeting, but if the Appointor votes on a resolution at the Scheme Meeting, the proxy is not entitled to vote as the Appointer's proxy on that resolution and any such vote must not be counted in the results of the relevant poll.
Except to the extent addressed by these Orders, the Scheme Meetings be:
(a) convened, held and conducted in accordance with the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Cth) (Determination) and subject thereto, the provisions of Part 2G.2 of the Act that apply to members of the company, and the provisions of the Plaintiff's Constitution that are not inconsistent with these Orders, the Determination and Part 2G.2; and
(b) convened, held and conducted as if rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) (Rules) does not apply.
Voting on the resolutions to approve the Structure A Scheme and Structure B Scheme is to be conducted by way of a poll.
The Structure A Proxy Form in respect of the Structure A Scheme Meeting and the Structure B Proxy Form in respect of the Structure B Scheme Meeting will be valid and effective if, and only if, they are completed and delivered in accordance with their terms by is 11.00am (Melbourne time) on Tuesday, 24 November 2020.
Mr Peter Charles Tonagh, or failing him, Ms Jennifer Fox Gambrell be the Chairperson of the Scheme Meetings.
The Chairperson of the Scheme Meetings shall have the power to adjourn the Scheme Meetings to such time, date and place as he or she considers appropriate.
Compliance with rule 3.4 and Form 6 of the Rules is dispensed with.
The Plaintiff publish in The Australian newspaper once on or before 27 November 2020 a notice of hearing substantially of Annexure C to these Orders.
The further hearing of the Originating Process in respect of the Plaintiff's application pursuant to subsection 411(4), and if necessary subsection 411(6), of the Act for approval of the Structure A Scheme or Structure B Scheme (as applicable), is adjourned to a hearing before the Honourable Justice Middleton on 4 December 2020 at 10.15am (Melbourne time) or as soon thereafter as the business of the Court allows.
There be liberty to apply.
Pursuant to rule 39.34 of the Federal Court Rules 2011 (Cth), these orders be entered forthwith
[2]
The Court notes that the Australian Securities and Investments Commission (ASIC) was provided with at least 14 days' notice of the hearing of this application.
A. The Court is satisfied that ASIC has had a reasonable opportunity to:
(i) examine the terms of the proposed schemes of arrangement to which the application relates and a draft explanatory statement relating to the proposed schemes of arrangement; and
(ii) make submissions to the Court in relation to the proposed schemes of arrangement and the draft explanatory statement.
B. The Court notes the letter dated 8 October 2020 from ASIC to MinterEllison, the solicitors for the Plaintiff, at Annexure 'BFO9' to the Third Oude-Vrielink Affidavit.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Annexure A
Structure A Scheme
Annexure B
Structure B Scheme
Annexure C
Notice of Second Court Hearing
Notice of hearing to approve arrangement
TO all the members of Village Roadshow Limited (ACN 010 672 054) (VRL)
TAKE NOTICE that at 10.15am (Melbourne time) on 4 December 2020 the Federal Court of Australia (Victoria District Registry) at Owen Dixon Commonwealth Law Courts Building, 305 William Street, Melbourne, Victoria 3000 will hear an application by VRL seeking the approval of an arrangement between VRL and its members if agreed to by a resolution to be considered at two meetings of such members held on Thursday, 26 November 2020 held as virtual meetings pursuant to the electronic arrangements described in the notices convening such meetings, with the first meeting commencing at 11.00am (Melbourne time) and the second meeting commencing at 12.00 noon (Melbourne time) or at the conclusion or adjournment of the first meeting (whichever time is later).
If you wish to oppose the approval of the arrangement, you must file and serve on VRL 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 VRL at its address for service by 5.00pm (Melbourne time) on 3 December 2020.
The address for service of VRL is: c/o MinterEllison, Rialto Towers, 525 Collins Street, Melbourne VIC 3000, Attention: Bart Oude-Vrielink. The notice of appearance and affidavit must also be sent by email to bart.oude-vrielink@minterellison.com.
Note that the hearing of VRL's application on 4 December 2020 may be conducted by teleconference or virtually (online only). For information on how to attend the hearing, visit https://www.fedcourt.gov.au/ or telephone the Federal Court of Australia (Victoria District Registry) on (03) 8600 3333 Monday to Friday between 8.30am and 5.00pm (Melbourne time).
[3]
INTRODUCTION
1 On 9 October 2020, I made orders in this proceeding. These are the reasons for those orders.
2 On 6 August 2020, the plaintiff ('VRL') entered into an implementation agreement ('Implementation Agreement') with Village Roadshow Corporation Pty Ltd ('VRC'), VRG Bidco Pty Ltd ('BidCo'), and VRG Holdco Limited ('HoldCo'), for the purpose of proposing two alternative and concurrent schemes of arrangement under Pt 5.1 of the Corporations Act 2001 (Cth) (the 'Act') ('Proposed Schemes') by which, if either of the Proposed Schemes is implemented, control of VRL would be acquired by entities owned by funds managed or advised by BGH Capital Pty Ltd ('BGH'). The proposed concurrent and alternative schemes are identified as the 'Structure A Scheme' and the 'Structure B Scheme' respectively. On 7 August 2020, the Proposed Schemes were announced to the Australian Securities Exchange ('ASX').
3 VRL seeks orders pursuant to s 411(1) of the Act:
(a) to convene a meeting of the holders of ordinary shares in VRL other than VRC, Mr Robert Kirby, Mr Graham Burke, Mr John Kirby and any closely related party of any of them (Structure A Excluded Shareholders) for the purpose of considering, and if thought fit, agreeing (with or without any alterations or conditions) to the Structure A Scheme (Structure A Scheme Meeting); and
(b) to convene a meeting of the holders of ordinary shares in VRL for the purpose of considering, and if thought fit, agreeing (with or without any alterations or conditions) to the Structure B Scheme (Structure B Scheme Meeting).
[4]
VRL
4 VRL is an Australian public company limited by shares admitted to the Official List of ASX, trading under the security code "VRL". It was incorporated under a different name on 11 November 1986 and listed on the ASX in 1988. It became known as Village Roadshow Limited on 14 October 1988. Its registered office is in Victoria. As at 5 October 2020, VRL had 195,300,579 fully paid ordinary shares on issue. As at 5 October 2020, VRL had 6,341 registered shareholders.
5 As at 5 October 2020, VRL's substantial shareholders were:
(a) BGH, HoldCo and BidCo and other entities controlled by HoldCo - 39.91% comprising 77,940,332 VRL Shares;
(b) VRC, Mr Robert Kirby, Mr Burke, Mr John Kirby and other entities affiliated with them, including Positive Investments Pty Ltd ACN 004 743 ('Positive') - 39.91% comprising 77,940,332 VRL Shares;
(c) Mittleman Investment Management, LLC and its affiliates (together, 'Mittleman') - 8.50% comprising 16,590,723 VRL Shares (however VRL was subsequently notified that Mittleman's holding has increased to 10.09% comprising 19,710,554 shares); and
(d) Mr Vijay Vijendra Sethu - 5.09% comprising 9,948,235 VRL Shares.
6 VRL is an entertainment company, operating through wholly-owned subsidiaries a number of theme parks and cinemas, as well as film distribution and marketing businesses. VRL's market capitalisation on 5 August 2020 was approximately $415.89 million.
[5]
VRL Directors
7 The directors of VRL are: Mr Robert Kirby (Executive Director and Chairman of VRL), Mr Peter Charles Tonagh (Non-Executive Director), Mr Robert Le Tet (Non-Executive Director), Ms Anna Maria Duran (Non-Executive Director); Ms Jennifer Fox Gambrell (Non-Executive Director); Mr Burke (Non-Executive Director), and Mr John Kirby (Non-Executive Director).
8 Ms Raffe is the Chief Financial Officer of VRL, joint Company Secretary, and alternate Director for Mr Robert Kirby and Mr Burke.
9 Messrs Robert and John Kirby, and Mr Burke ('VRC Principals'), each own 33.33% of the shares in Positive, which is the ultimate parent of VRC through Positive's wholly owned subsidiary, VRC Investment Co Pty Ltd. As noted above, VRC, the VRC Principals and their entities together hold 39.91% of the shares in VRL. The VRC Principals are also directors of Positive.
10 The shares held by or on behalf of each of the directors of VRL are detailed at section 12.2 of the Scheme Booklet in evidence before the Court. VRL does not have any options or performance rights on issue.
[6]
Executive Incentive Arrangements
11 VRL does have shares issued under executive incentive arrangements ('ESP Shares'), issued on the basis of a non-recourse loan from VRL to the holders of these shares ('ESP Holders'). On 19 November 1996, VRL shareholders approved the Executive Share Plan and Loan Facility, which allows for the issue of up to 5% of VRL's issued shares to relevant employees of the consolidated entity and significant associated entities.
12 On 5 August 2020, the VRL Board resolved:
(a) that VR ESP Finance Pty Ltd will not seek repayment from or take action against any ESP Holder where the 'Scheme Consideration' (as defined in either the Structure A Scheme or the Structure B Scheme) is not sufficient to repay the outstanding loan under the Employee Share Plan; and
(b) that to the extent that the Scheme Consideration under either the Structure A Scheme or the Structure B Scheme is more than $2.50 per VRL share, all vesting conditions on shares issued at $2.50 will be waived to allow the holders of any unvested VRL shares issued under the Employee Share Plan to receive the net amount of any Scheme Consideration under either the Structure A Scheme or the Structure B Scheme after repayment of the principal loan amount and any accrued interest.
13 Votes attached to ESP Shares will be able to be cast at the Structure A Scheme Meeting (provided they are not held by any of the Structure A Excluded Shareholders), and at the Structure B Scheme Meeting. The proposed arrangements in respect of the ESP Shares under the Proposed Schemes are summarised in section 12.11 of the draft scheme booklet that is proposed to be sent to VRL shareholders in relation to the Proposed Schemes ('Scheme Booklet').
14 With the exception of a tranche of ESP Shares that were issued at $2.35 per share to VRL's Chief Financial Officer (Ms Raffe), all other ESP Shares were issued at a price of $2.50 per share or higher.
15 This means that apart from the holder of the $2.35 tranche, all other holders of ESP Shares will not receive any Scheme Consideration given that the maximum Scheme Consideration under the Structure A Scheme is $2.37. It is highly unlikely that the Chief Financial Officer will receive any Scheme Consideration given that one of the two remaining consideration uplift events from the base consideration of $2.20 are unlikely to occur, leaving the maximum Scheme Consideration under the Structure A Scheme at $2.32.
[7]
Independent Board Committee
16 In late 2019, VRL announced via the ASX public announcements platform that it had received a conditional, non-binding and indicative proposal from Pacific Equity Partners Pty Ltd.
17 VRL established an Independent Board Committee ('IBC') to evaluate the proposal.
18 On 24 January 2020, VRL announced via the ASX public announcements platform that it had received a conditional, non-binding and indicative proposal from BGH. Following receipt of this proposal, the IBC's role was extended to oversee VRL's response to this proposal, as well as the later revised proposal of BGH received on 15 May 2020 that became the Proposed Schemes.
19 While the revised proposal of BGH is substantially less than its initial proposal, I accept that that this is due to the impact on VRL and its businesses from the COVID-19 pandemic. The COVID-19 pandemic has had an adverse impact on VRL and the operations of the VRL Group, including affecting the VRL Group's debt position and the subsequent need to raise further finance.
20 The IBC does not include any of the VRC Principals. None of the VRC Principals attended any meeting of the IBC, or participated in any deliberations on behalf of VRL as part of the IBC process, in relation to the Proposed Schemes.
21 On 5 August 2020, the IBC assessed the BGH proposal as an overall package representing significant value which merited recommendation to the VRL Board, and which should be progressed and presented to VRL shareholders for consideration. Later on the same day, the VRL Board discussed the steps to finalise the arrangements with BGH and requested the company's advisers proceed to finalise those arrangements for the VRL Board to consider.
[8]
Structure of proposed schemes
22 The Structure B Scheme will only proceed if the Structure A Scheme is not approved either at the Structure A Scheme Meeting, or by the Court.
23 Clause 2(a) of the Implementation Agreement provides for VRL to propose both the Structure A Scheme and the Structure B Scheme, and to implement either of them on and subject to the terms and conditions of the Implementation Agreement, and substantially in accordance with the indicative timetable that is Schedule 1 to the Implementation Agreement.
24 Clause 2(b) of the Implementation Agreement provides for BidCo and VRC to assist VRL in proposing and implementing the Structure A Scheme on and subject to the terms and conditions of the Implementation Agreement, and substantially in accordance with the indicative timetable.
25 Clause 2(c) of the Implementation Agreement provides for BidCo to assist VRL in proposing, and if the Structure A Scheme is not approved, implementing the Structure B Scheme on and subject to the terms and conditions of the Implementation Agreement, and substantially in accordance with the indicative timetable.
[9]
Overview of the Structure A Scheme
26 The Structure A Scheme is part of a series of transactions that will involve BGH acquiring, directly or indirectly, 100% of the ordinary shares in VRL through:
(a) in relation to approximately 39.91% of the shares in VRL:
(i) BidCo and HoldCo on the one hand, and each shareholder in Positive (including the VRC Principals) on the other, entering into a Sale Agreement ('Positive Sale Agreement') to acquire 100% of the shares in Positive (which as noted above is the holding company of VRL's largest shareholder VRC); and
(ii) VRC entering into a Share Sale Agreement with each of the VRC Principals and their respective closely related parties ('VRC Principals Share Sale Agreements') to acquire the VRL shares of the VRC Principals and their respective closely related parties; and
(b) in relation to the balance of approximately 60.09% of the shares in VRL, a scheme of arrangement under Part 5.1 of the Act between VRL and the ordinary shareholders of VRL (other than the Structure A Excluded Shareholders), under which VRC will acquire the remaining VRL shares on issue.
27 The result of the Structure A Scheme being implemented will be that VRL becomes a wholly-owned subsidiary of VRC, with BGH attaining control of VRL through its ultimate ownership of VRC's ultimate parent company, Positive.
28 As to BGH acquiring control of VRC, and VRC acquiring VRL shares, these transactions are given effect through a number of separate agreements, described in the Structure A Scheme and the Implementation Agreement as the 'Structure A Ancillary Agreements'.
[10]
Joint Bidding Agreement
29 On 6 August 2020, BGH, HoldCo, BidCo, Positive, VRC, Mr Robert Kirby, Mr John Kirby and Mr Burke entered into an agreement ('Joint Bidding Agreement').
30 The Joint Bidding Agreement reflects the parties' agreement to progress and implement the Structure A Scheme. By cl 3.1, Positive and VRC undertake not to take any step to enter into any similar transaction, dispose of their assets, or incur any obligations or liabilities other than in connection with the Structure A Scheme.
31 Clause 4.1 of the Joint Bidding Agreement contains exclusivity provisions including 'no shop', 'no talk', and 'no due diligence' restrictions to the effect that Positive, VRC and the VRC Principals must not solicit, initiate, participate in or encourage any competing proposal to the Structure A Scheme.
32 These exclusivity provisions are mirrored in cl 17 of the Implementation Agreement for the 'Exclusivity Period' (defined as the period commencing on 6 August 2020 and ending on the earliest of either: the 'End Date' (defined as 31 March 2020 or such other date agreed in writing between VRL and BidCo); when either of the Proposed Schemes become effective; or when the Implementation Agreement is terminated in accordance with its terms. I observe that exclusivity restrictions of this kind have now been accepted by this Court in many schemes of arrangement.
33 On 4 August 2020, ASIC granted joint bid relief under s 655A(1) of the Act to allow BGH to enter into the arrangements with the other joint bidders in relation to the Structure A Scheme.
34 As a result of the Joint Bidding Agreement, BGH and its associated entities acquired voting power of 39.918% in VRL.
[11]
Positive Sale Agreement and VRC Principals Share Sale Agreements
35 Also on 6 August 2020, the VRC Principals, BidCo and HoldCo entered into the Positive Sale Agreement and nine VRC Principals Share Sale Agreements. The Positive Sale Agreement provides for the shareholders in Positive to sell all of their shares subject to the Structure A Scheme becoming effective, while the VRC Principals Share Sale Agreements provide for the VRC Principals and their respective closely related parties to sell all the VRL shares which are held or beneficially owned by them to VRC.
[12]
Subscription Agreement
36 Also on 6 August 2020, VRC, BidCo and HoldCo among others entered into an agreement pursuant to which BGH and Affiliates of BGH (as defined in the Implementation Agreement) agree to subscribe for shares in HoldCo ('Subscription Agreement').
[13]
Consideration under the Structure A Scheme
37 Clause 5.1 of the Structure A Scheme and cl 5.2 of the Implementation Agreement provide for each shareholder entitled to vote at the Structure A Scheme Meeting ('Structure A Scheme Shareholders') to receive the Scheme Consideration under the Structure A Scheme. The base offer of cash consideration under the Structure A Scheme is $2.20 per share. This can increase subject to certain uplift conditions, being:
(a) cash consideration of $0.12 per share if the Warner Bros, Movie World and Sea World theme parks are open to the public for a period of five business days ending at 4.00pm on the day that is two business days prior to the proxy cut-off date for the proposed shareholder meeting to vote on the Structure A Scheme ('Theme Parks Uplift');
(b) cash consideration of $0.05 per share if there are no border control measures imposed by the Queensland State government prohibiting any person from entering Queensland from New South Wales on 15 October 2020 and from Victoria on 31 October 2020 ('Border Uplift'); and
(c) cash consideration of $0.08 per share if certain cinema business locations are open to the public for a period of five business days ending at 4.00pm on the day that is two business days prior to the proxy cut-off date for the proposed shareholder meeting to vote on the Structure A Scheme ('Cinema Uplift').
38 In the alternative to receiving cash consideration, Structure A Scheme Shareholders can make an election to receive either:
(a) 50% shares in HoldCo and 50% cash consideration; or
(b) 100% shares in HoldCo.
39 Clause 5.2 of the Structure A Scheme provides for the election procedure available to Structure A Scheme Shareholders as follows:
(a) each Structure A Scheme Shareholder (excluding 'Foreign Scheme Shareholders', dealt with further and defined at [45] below) is entitled to make an election as per the options described above;
(b) any election so made may be withdrawn or revoked, provided the relevant form is received on or before the 'Election Date', being 5.00pm on the date that is three clear business days before the date of the Structure A Scheme Meeting; and
(c) subject to any Structure A Scheme Shareholder who holds one or more parcels of VRL Shares as trustee or nominee for, or otherwise on account of, another person, in which case they may make separate elections in relation to each parcel so held, the election made by the Structure A Scheme Shareholder will be deemed to apply in respect of the their registered holding of VRL Shares at the 'Record Date' (being 7.00 pm on the second business day after the date the Structure A Scheme becomes effective, or such other time and date agreed to in writing between VRL and BidCo), regardless of whether their holding of VRL shares at the Record Date is greater or less than their holding as at the time they make an election.
40 The election cut-off date is currently 5.00pm on the date that is three clear business days before the date of the Structure A Scheme Meeting, being 5.00pm on Monday 23 November 2020. The proxy cut-off date is currently 11.00am on Tuesday 24 November 2020.
41 These dates will mean that VRL shareholders will know whether any of the conditional price uplifts (and in particular the final Theme Park Uplift, which will be known by 4.00pm on Friday 20 November 2020) have been satisfied before it is necessary to decide whether to make an election or to receive the default cash consideration. VRL shareholders will know whether the conditions for the Border Uplift have been satisfied by 31 October 2020.
42 The indicative election results will then also be announced to the ASX as soon as is practicable after the markets open on Tuesday 24 November 2020. There is thus time for any shareholders to lodge a proxy if they wished to know the indicating election results before choosing to do so.
43 Under the definition of Scheme Consideration in cl 1.1 of the Structure A Scheme (into which are incorporated definitions under the Implementation Agreement, including 'Structure A Share Cap' and 'Structure A Share Floor'), the issue of scrip consideration in HoldCo is subject to the total number of HoldCo shares elected being equal to or exceeding 5% of all VRL Shares on issue as at the date of the Implementation Agreement, being 6 August 2020, and up to a maximum 15% of all VRL shares on issue as at the date of the Implementation Agreement. Scale-back will apply if the 15% threshold is exceeded.
44 If the total number of holders of HoldCo shares, or the total number of expected holders of other classes of shares in HoldCo, exceeds 50, shareholders agree to have their HoldCo shares transferred to a 'Nominee' (defined in the proposed shareholder deed for the Structure A Scheme ('HoldCo Shareholders' Deed') as an independent third party trustee company appointed by HoldCo from time to time) or trustee and held on separate bare trust for each HoldCo shareholder. Each Structure A Scheme Shareholder also agrees to be bound by the Nominee Deed, which will be a custodian deed entered into between HoldCo and the Nominee at the same time as the HoldCo Shareholders' Deed.
45 With respect to 'Foreign Scheme Shareholders', being Structure A Scheme Shareholders whose registered addresses are outside Australia or its external territories, and any other jurisdictions as may be agreed in writing by VRL and HoldCo (unless HoldCo determines otherwise), cl 5.3 of the Structure A Scheme provides that HoldCo will be under no obligation to issue, and must not issue, any HoldCo shares to these shareholders. Accordingly Foreign Scheme Shareholders are only entitled to receive cash consideration under the Structure A Scheme.
[14]
The HoldCo Shareholders' Deed
46 VRL shareholders who elect to receive HoldCo shares agree to be bound by the constitution of HoldCo and the HoldCo Shareholders Agreement. Section 1.5 of the Scheme Booklet informs VRL Shareholders that they may request a copy of the HoldCo Shareholders' Deed to be sent to them either in hard copy or electronically by contacting the VRL shareholder information line.
47 The HoldCo Shareholders' Deed will also provide for a number of exit arrangements, including drag-along rights under cl 14 whereby HoldCo shareholders (which must include a 'BGH Shareholder' as that term is defined in the HoldCo Shareholders' Deed) that hold more than 50% of the HoldCo shares on issue and wish to sell more than 50% of the HoldCo Shares held by all HoldCo shareholders to a third party (defined as 'Exiting Shareholders') may require other shareholders to sell the same proportion of their HoldCo Shares to the third party.
48 Clause 13 of the HoldCo Shareholders' Deed also provides for tag-along rights so that if a sale as described in the foregoing paragraph occurs the remaining HoldCo shareholders must be invited to sell the same proportion of their HoldCo shares to the third party on terms no less favourable than the terms offered by the third party to the selling shareholders, subject to certain exceptions set out in the HoldCo Shareholders' Deed.
49 The Exiting Shareholders may also request that HoldCo pursue an initial public offering. This request may be made at any time following the fifth anniversary of the Implementation Date, or earlier if certain qualifying circumstances and 'Special Majority Approval' (as that term is defined in the HoldCo Shareholders' Deed) of the HoldCo Board is obtained.
[15]
Conditions of the Structure A Scheme
50 Clause 3 of the Structure A Scheme provides that the Structure A Scheme is conditional on, and will have no force or effect until, the satisfaction of each of the following conditions precedent:
(a) all the conditions precedent in cl 3.1 of the Implementation Agreement (other than the condition relating to court approval) having been satisfied or waived in accordance with the terms of the Implementation Agreement by no later than two hours before the commencement of the 'Second Court Date' (as defined in the Implementation Agreement), or if the commencement of the hearing is adjourned, the commencement of the adjourned hearing;
(b) neither the Implementation Agreement nor the Structure A Scheme Deed Poll having been terminated in accordance with their terms by no later than two hours before the commencement of the Second Court Date;
(c) approval of the Structure A Scheme by the Court under s 411(4)(b) of the Act, including with any alterations made or required by the Court under s 411(6) of the Act as are agreed to in writing by VRL and VRC;
(d) any such other conditions imposed by the Court under s 411(6) of the Act, as are agreed to in writing by VRL, VRC and HoldCo, having been satisfied; and
(e) the orders of the Court made under s 411(4)(b) (and if applicable s 411(6)) of the Act) approving the Structure A Scheme coming into effect, pursuant to s 411(10) of the Act, on or before the End Date or any later date agreed in writing between VRL, VRC and HoldCo.
[16]
Structure A Scheme Deed Poll
51 The Implementation Agreement provides that VRC covenants in favour of VRL (in VRL's own right and separately as trustee for each of the Structure A Scheme Shareholders), and that HoldCo also covenants, to execute and deliver to VRL a proposed deed poll in relation to the Structure A Scheme ('Structure A Scheme Deed Poll') by no later than the day before the 'First Court Date' (as defined in the Implementation Agreement).
52 On 7 October 2020, VRL, VRC and HoldCo executed the Structure A Scheme Deed Poll.
53 The Structure A Scheme Deed Poll provides that, subject to the conditions in cl 3 (including the Structure A Scheme becoming effective and the Implementation Agreement not being terminated), VRC and HoldCo covenant in favour of Structure A Scheme Shareholders to perform the actions attributed to them respectively under, and otherwise comply with, the Structure A Scheme as if VRC and HoldCo were parties to the Structure A Scheme.
54 The Structure A Scheme Deed Poll also provides that each of VRC and HoldCo undertakes in favour of each Structure A Scheme Shareholder to provide or procure the provision of the Scheme Consideration under the Structure A Scheme to each Structure A Scheme Shareholder in accordance with the terms of the Structure A Scheme.
55 It is proposed that VRL will be delisted from the ASX following the implementation of the Structure A Scheme.
[17]
Overview of the Structure B Scheme
56 As noted above, the Structure B Scheme will proceed only if the Structure A Scheme is not approved by the requisite majorities of VRL shareholders or by the Court. If the Structure A Scheme does not succeed, the Structure B Scheme begins without any remaining rights and obligations created through the Structure A Scheme process and associated documents. Whereas the bidder in the Structure A Scheme is VRC, the bidder in the Structure B Scheme is BidCo.
57 The Structure B Scheme will involve BGH acquiring, directly or indirectly through BidCo, 100% of the ordinary shares in VRL, other than those VRL shares of VRL shareholders who elect to remain as VRL shareholders, through a scheme of arrangement under Pt 5.1 of the Act between VRL and all of its shareholders (including VRC and the VRC Principals).
[18]
Consideration under the Structure B Scheme
58 The Structure B Scheme provides for a base offer cash consideration of $2.10 per share, with the same uplift possibilities as per the Structure A Scheme, namely the Theme Parks Uplift, the Border Uplift and the Cinema Uplift.
59 Instead of receiving the default cash consideration, each shareholder entitled to vote at the Structure B Scheme Meeting ('Structure B Scheme Shareholders), including VRC and the VRC Principals, will have the option of electing to remain as VRL shareholders (defined as 'Retaining Shareholders'). A VRL shareholder's choice between cash and retention of shares is an 'all or nothing' decision.
60 Under cl 4.2 of the Structure B Scheme, and subject to the payment of the Scheme Consideration, VRL shareholders who are not retaining their shares will have their VRL shares transferred to BidCo on the 'Implementation Date' (as defined in the Structure B Scheme), together with all the rights and entitlements attaching to the those shares at the Implementation Date, without the need for any further act on the shareholder's part.
61 Similar conditions for an election under the Structure A Scheme apply to the Structure B Scheme:
(a) each Structure B Scheme Shareholder is entitled to make an election to remain a VRL shareholder;
(b) any election so made may be withdrawn or revoked, provided the relevant form is received on or before the 'Election Date', being 5.00pm on the date that is three clear business days before the date of the Structure B Scheme Meeting; and
(c) subject to any Structure B Scheme Shareholder who holds one or more parcels of VRL shares as trustee or nominee for, or otherwise on account of, another person (in which case they may make separate elections in relation to each parcel so held), the election made by the Structure B Scheme Shareholder will be deemed to apply in respect of the their registered holding of VRL shares as at the 'Record Date' (being 7.00 pm on the second business day after the date the Structure B Scheme becomes effective, or such other time and date agreed to in writing between VRL and BidCo), regardless of whether their holding of VRL shares as at the Record Date is greater or less than as at the time they make an election.
62 Under the Structure B Scheme, the ability for shareholders to retain VRL shares is subject to a retention cap of 50% of VRL shares on issue, with scale-back applying if the 50% threshold is exceeded.
63 Pursuant to cl 9.6(a)(iii) of the Structure B Scheme, if the total number of holders of Retained Shares, and the total number of expected holders of the 'Transferring Shares' (being VRL shares that are not retained by VRL shareholders) exceeds 50, shareholders agree to have their VRL shares transferred to 'a Nominee' (defined in the proposed shareholder agreement for the Structure B Scheme ('VRL Shareholders' Deed') as an independent third party trustee company appointed by VRL from time to time) or trustee and held on separate bare trust for each VRL shareholder.
[19]
The VRL Shareholders' Deed
64 Under the Structure B Scheme, each Structure B Scheme shareholder agrees, to the extent they hold Retained Shares, to be bound by the VRL Shareholders' Deed.
65 The initial VRL Board of six will comprise three nominees of BidCo (the 'BGH Directors') which BidCo will be able to remove and replace at any time, and three other directors, namely Mr Burke and Mr Robert Kirby as co-chairs and the current Chief Executive Officer, Clark Kirby (the 'Participating Directors').
66 The Participating Directors may be removed and replaced by Retaining Shareholders holding 75% or more of the VRL shares on issue that are not held by BidCo or its affiliates, provided that BidCo consents to the appointment. However, if BidCo comes to hold 90% of the VRL shares, then BidCo will have the exclusive right to appoint, remove and replace the BGH Directors and the Participating Directors.
67 The BGH Directors and the Participating Directors will have voting rights on the VRL Board corresponding, respectively, to the total holding of VRL shares by BGH and its associates (including BidCo) and the total holdings of Retaining Shareholders.
68 Certain important 'Reserved Matters' (as defined in the VRL Shareholders' Deed) will require special majority approval, including approval of the business plan, or divestment of certain categories of assets, or a material change in the capital structure, or any equity raising, or any departure from the dividend policy.
69 The VRL Shareholders' Deed also provides for a number of exit arrangements. Clause 14 provides for drag-along rights, whereby BidCo, or BidCo with one or more of the Retaining Shareholders who wish to transfer some or all of their shares comprising more than 50% of the shares held by all VRL shareholders can require other minority shareholders to also transfer their shares, other than any shareholder who:
(a) immediately following implementation of the Structure B Scheme, held more than 15% of the VRL shares; and
(b) at the time the majority shareholder proposes to dispose of their shares, has more than 7.5% of the VRL shares.
70 Similar tag-along rights as are provided for in the HoldCo Shareholders' Deed are also provided for in cl 13 of the VRL Shareholders' Deed, namely that if Retaining Shareholders holding at least 50% of VRL shares between them propose to dispose of more than 50% of VRL shares to a third party, each of the other shareholders may elect to dispose of an equivalent proportion of their shares at the same price and on the same terms and conditions.
[20]
Conditions of the Structure B Scheme
71 Clause 3 of the Structure B Scheme provides that the Structure B Scheme is conditional on, and will have no force or effect until, the satisfaction of each of the following conditions precedent:
(a) all the conditions precedent in cl 4.1 of the Implementation Agreement (other than the condition relating to court approval) having been satisfied or waived in accordance with the terms of the Implementation Agreement by no later than two hours before the commencement of the Second Court Date;
(b) neither the Implementation Agreement nor the Structure B Scheme Deed Poll having been terminated in accordance with their terms by no later than two hours before the commencement of the Second Court Date;
(c) approval of the Structure B Scheme by the Court, including with any alterations made or required by the Court under s 411(6) of the Act as are agreed to in writing by VRL and BidCo;
(d) such other conditions imposed by the Court under s 411(6) of the Act, as are acceptable to the parties, having been satisfied; and
(e) the orders of the Court made under s 411(4)(b) (and if applicable s 411(6) of the Act) approving the Structure B Scheme coming into effect, pursuant to s 411(10) of the Act, on or before the End Date or any later date VRL and BidCo agree in writing.
[21]
Restructure Event under Structure B Scheme
72 Under cl 16 of the VRL Shareholders' Deed, BidCo (or as otherwise notified in a Deed of Accession under the Structure B Shareholders' Deed) may acquire directly or indirectly all of the VRL shares that it does not already own in exchange for HoldCo shares, or a combination of cash consideration and HoldCo shares ('Restructure Event'). The Restructure Event was included in the Structure B Scheme to provide a pathway to disaggregation, which was required by BGH and the VRC Principals.
73 These provisions allow for BidCo, or one or more holders who collectively hold 7.5% of VRL shares after implementation of the Structure B Scheme, to initiate a Restructure Event. In a Restructure Event, a Retaining Shareholder will be required to sell their VRL shares in exchange for HoldCo shares, or a combination of cash and HoldCo shares (or just cash in certain limited circumstances, such as where it is considered impractical to offer HoldCo shares, for example due to the application of foreign securities laws to the Retaining Shareholder).
74 In a Restructure Event, cash consideration will be the Structure B Scheme cash consideration less $0.10 per share. The Restructure Event is priced at $0.10 less than the Structure B Scheme cash consideration as a result of a commercial negotiation between BidCo and the IBC.
[22]
Structure B Scheme Deed Poll
75 The Implementation Agreement provides that BidCo covenants in favour of VRL (in VRL's own right and separately as trustee for each of the Structure B Scheme Shareholders) to execute and deliver a proposed deed poll in relation to the Structure B Scheme ('Structure B Scheme Deed Poll') by no later than the day before the First Court Date.
76 The Structure B Scheme Deed Poll in turn provides that BidCo covenants in favour of Structure B Scheme Shareholders to perform the actions attributed to it under, and otherwise comply with, the Structure B Scheme as if BidCo was a party to the Structure B Scheme.
77 On 7 October 2020, VRL and BidCo executed the Structure B Scheme Deed Poll.
[23]
VRL Break Fee
78 Under the Implementation Agreement, VRL must pay BidCo a break fee of $4.29 million (inclusive of GST) ('VRL Break Fee') in certain circumstances, namely the success of a competing proposal to the Proposed Schemes, a change of recommendation by an Independent Director, or a material breach of the Implementation Agreement.
79 The inclusion of the VRL Break Fee, and in particular the circumstances and conditions triggering the payment of the VRL Break Fee in the Implementation Agreement, including the amount of the VRL Break Fee, was negotiated between the parties.
80 The evidence before the Court indicates that the IBC took into account the Takeovers Panel's Guidance Note 7: Lock Up Devices, and that the IBC ultimately determined that the VRL Break Fee amount of $4.29 million (inclusive of GST) was reasonable and appropriate in the circumstances, and that it represents approximately 1% of the equity value of VRL, based on an amount of $2.20 per VRL share multiplied by the number of VRL shares on issue as at 6 August 2020.
81 The VRL break fee would not be payable simply because the VRL shareholders do not vote to approve either of the Proposed Schemes.
82 I am satisfied that the arrangements concerning the VRL Break Fee are not such as could influence voting at the Scheme Meetings, given that voting against either of the schemes placed before the meeting will not trigger payment of the fee, and the fee falls within the 1% limit advocated by the Takeovers Panel: see generally Re SFE Corporation Ltd (2006) 59 ACSR 82 (Gyles J) at [7].
[24]
BidCo Break Fee
83 The Implementation Agreement also provides that BidCo must pay VRL a break fee of $4.29 million (inclusive of GST) ('BidCo Break Fee') in certain circumstances, namely if the Structure A Scheme becomes effective but BidCo does not satisfy its obligations under the Subscription Agreement; if the Structure B Scheme becomes effective but BidCo does not pay the Scheme Consideration under the Structure B Scheme; or if VRL terminates the Implementation Agreement as a result of a material breach by BidCo.
[25]
VRC Break Fee
84 The Implementation Agreement also provides that VRC agrees to pay to VRL a break fee of $4.29 million (inclusive of GST) ('VRC Break Fee') if VRL terminates the Implementation Agreement as a result of a material breach by VRC.
85 In my view there is no basis for concern that either the BidCo Break Fee or the VRC Break Fee might influence voting at the Scheme Meetings.
[26]
Position of VRL directors
86 As noted above, the directors of VRL who are Structure A Excluded Shareholders are not participating in the Structure A Scheme Meeting.
87 The interests of the directors in VRL are as disclosed at s 12.2 of the Scheme Booklet.
88 No payment or other benefit is proposed to be made or given in connection with either of the Proposed Schemes to any non-executive director of VRL as compensation for loss of, or as consideration for, or in connection with, his or her retirement from office in VRL or in any related body corporate of VRL.
89 No payment or other benefit is proposed to be made or given in connection with either of the Proposed Schemes to any executive director of VRL. If either of the Proposed Schemes proceed, it is intended that the executive directors will be re-engaged under new contracts.
90 It appears that no VRL director is in a position of conflict of interest or conflict of duties with respect to the Proposed Schemes.
[27]
Different cash consideration under the Structure A Scheme and the Structure B Scheme
91 The difference in cash consideration arises because of the different cost and structural outcomes of the two Proposed Schemes, namely:
(a) the expectation that implementing Structure B, as well as the Restructure Event (if it eventuates), will result in additional cost being incurred by BidCo relative to implementing Structure A, which achieves the immediate disaggregation of the VRC Group's shareholding; and
(b) the certainty available to BidCo under the Structure A Scheme, with respect to the HoldCo share register and HoldCo Board composition.
[28]
CONSIDERATION
92 Part 5.1 of the Act provides for a procedure whereby an arrangement between a company and its members (a scheme) can be made binding on all members.
93 The procedure involves three main steps:
(a) an application to the Court for an order that the company convene a meeting of its members;
(b) if such an order is made, the convening of such a meeting at which a resolution agreeing to the scheme is considered, and perhaps passed; and
(c) if the resolution is passed by the necessary majority (see s 411(4)), an application to the Court for approval of the Scheme.
94 The hearing on 9 October 2020 is concerned with the first stage of that process.
95 This procedure is regulated by s 412 of the Act and reg 5.1.01 of, and Sch 8 to, the Corporations Regulations 2001 (Cth), each of which relates to the information about the scheme that is required to be sent to the members.
96 The Scheme is also regulated by the Federal Court (Corporations) Rules 2000 (Cth) ('Rules').
97 Section 411 of the Act relevantly confers a discretion on the Court to order that the company convene a meeting of its members if:
(a) a compromise or arrangement is proposed between a Part 5.1 body and its members (or any class of them);
(b) an application for the order is made in a summary way by the body;
(c) 14 days' notice of the hearing of the application has been given to ASIC (or such lesser period as the Court or ASIC permits); and
(d) the Court is satisfied that ASIC has had a reasonable opportunity to:
(i) examine the terms of the proposed compromise or arrangement to which the application relates and a draft explanatory statement relating to the proposed compromise or arrangement; and
(ii) make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory statement.
98 I am satisfied on the evidence the requirements of s 411 of the Act have been satisfied to enliven the Court's exercise of discretion.
99 Section 411 of the Act does not state the criteria that must be satisfied before a meeting is ordered, but it the court has a discretion to exercise in relation to whether the first meeting should be ordered. In Re CSR Ltd (2010) 183 FCR 358, it was stated at [8]:
It is convenient to note here that s 411(2) contains a statement of the circumstances in which the first meeting must not be ordered. Section 411 contains no statement of the criteria which must be satisfied before a meeting is ordered, but it is clear that the court has a discretion to exercise in relation to whether the first meeting should be ordered: Re Hawke Insurance Co Ltd [2002] BCC 300 at 306 [21] ; [2001] 2 BCLC 480 ; [2001] EWCA Civ 241.
100 As explained by Davies J in Re Cytopia Ltd [2009] VSC 560 at [3], in a passage relied on in Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [11]:
The authorities make it clear that the Court's role at this stage is not to express a view on whether the proposed scheme should be approved. It is also clear that it is not the Court's role to usurp the shareholders' decision, by attempting to intrude its own commercial judgment. The Court is to be concerned with whether there is adequate disclosure to the shareholders in the Scheme Booklet (or explanatory memorandum), whether the legal requirements otherwise have been complied with and whether the scheme, on its face, is one that is sufficiently "fair and reasonable" to be capable of being put to shareholders for their approval or rejection.
(Citations omitted.)
101 The Court must then be satisfied of two matters:
(a) that the scheme is fit for consideration by the proposed meeting in the sense that it is "of such a nature and cast in such terms that, if it achieves the statutory majority at the [members'] meeting the court would be likely to approve it on the hearing of a petition which is unopposed": FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 per Street CJ (see also Re Bank of Adelaide (1979) 22 SASR 481 at 494-495 per Wells J; Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504-505; Re Coles Group Ltd (2007) 25 ACLC 1380 at [29]-[36] per Robson J); and
(b) that the members are to be properly informed as to the nature of the scheme before the scheme meeting: Re NRMA Insurance Ltd (No 1) (2000) 156 FLR 349 at [30] (see also Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [38]; Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [27]).
102 In Re Amcor Ltd [2019] FCA 346 ('Re Amcor'), Beach J described the Court's role at the first court hearing as follows (at [47]):
My function on an application to order the convening of a meeting is supervisory. At this stage I should generally confine myself to ensuring that certain procedural and substantive requirements have been met including dealing with adequate disclosure, with limited consideration of issues of fairness. But having said that, it is appropriate to consider the merits or fairness of a proposed scheme at the convening hearing if the issue is such as would unquestionably lead to a refusal to approve a proposed scheme at the approval hearing, that is the proposed scheme appears now to be on its face 'so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further' (Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [44] per French J).
103 It is appropriate to also recall the comments of Hayne J (as a judge of the Supreme Court of Victoria) in Re Sonodyne International Ltd (1994) 15 ACSR 494 at 499-500:
… in the end the question that is presented at this stage of the process of a company propounding and implementing a scheme of arrangement is whether the scheme is such that it could reasonably be supposed by sensible business people to be for the benefit of the class concerned. That is, the test in the present case is whether it is reasonable to suppose that sensible business people might consider that the arrangement proposed by the company is of benefit to its members.
I do not consider that that question requires, or in the circumstances of this case permits the court to embark upon a nice analysis of whether the chance that is now offered to members to derive some benefit from their shareholding is likely or unlikely to occur. Of course, there may be cases in which the appearance of benefit to members or creditors is properly classified as illusory but I do not consider that that is this case. It has often been said both in the context of schemes of arrangement and elsewhere that the court is not to substitute its judgment on affairs of business for the judgment of the business people concerned. If the members of this company consider that the chance is worth pursuing then they may choose to vote for it. If they do not, or for some other reason they consider that the scheme should not be approved, then they will vote against it. At the stage of determining whether or not to permit the matter to be put to members, I do not consider that it is right for the court now to conclude that what is proposed is not an arrangement because there is no sufficient prospect of benefit to members. In saying that I am not to be taken as expressing any view of any kind on the matters of business judgment that have been raised and debated in the course of argument beyond saying that I consider that the arrangement is one which could reasonably be supposed by sensible business people to be for the benefit of members as a whole. Even if the requisite majority of members vote in favour of the scheme that will still leave wholly open the question whether the court should in all the circumstances approve of it.
104 Therefore, it is clear that the Court at this stage is not considering whether it will approve the scheme: the enquiry is far more limited to considering whether sensible business people could consider the arrangement to be for the benefit of members as a whole. The Court should be careful not to preclude the members of the company from having the opportunity to consider the scheme.
105 As to any issues arising as to class, the test for identifying a class for the purposes of a scheme of arrangement set out in the well-known authority of Sovereign Life Assurance Company v Dodd [1892] 2 QB 573 at 583, where Bowen LJ set out the test for identifying a class for scheme of arrangement purposes as follows:
It seems plain that we must give such a meaning to the term 'class' as will prevent the section being so worked as to result in confiscation and injustice, and that 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.
106 Australian courts have preferred to deal with an asserted discriminating feature at the second court hearing, bearing in mind that if a minority view against the scheme is put into a separate class, the court has unnecessarily created a power of veto of the scheme.
107 In Re Healthscope Limited (2019) 139 ACSR 608 at [118] and [120], Beach J observed that Bowen LJ's test:
[118] …requires a commercial evaluative judgment to be made of the transactions, circumstances and consequences said to justify the delineation, in the context of the particular scheme and its effect overall. Moreover, if the asserted discriminating feature can be dealt with at the second court hearing, there is less of a need to be definitive at the first court hearing in terms of class definition except in a clear class. Moreover one should be cautious about stipulating separate classes. It can easily and wrongly empower a minority view; I can of course easily deal with excessive or oppressive majority influences at the second stage…
[120] [O]ne option is not to order separate meetings but to leave the matter to the second court hearing approval stage…
108 In this instance, any votes cast by VRC and the VRC Principals on the resolution to approve the Structure B Scheme will be 'tagged' for the purposes of identification at the Structure B Scheme Meeting.
109 If the Structure B Scheme is approved by the requisite majorities at the Structure B Scheme Meeting, the 'tagged' votes in favour by the above VRL shareholders will be drawn to the Court's attention at the approval hearing.
110 This preserves for the Court the option to consider at the second court hearing any unfairness produced by shareholder voting in a single class.
111 As to class issues, I make these observations.
112 The voting of ESP Holders on the Proposed Schemes does not seem to give rise to any class issue, as those members are not treated differently under the Proposed Schemes. The ESP Shares do not give rise to any relevant distinction between the rights of their holders and those of ordinary shareholders.
113 Then as to the Foreign Scheme Shareholders (who are only entitled to receive cash consideration under the Structure A Scheme), there is undoubtedly differentiation between VRL shareholders based on their jurisdiction. In Re Think Childcare Limited [2019] FCA 1862, Markovic J considered a scheme of arrangement where it was similarly proposed that shareholders in certain foreign jurisdictions receive an equivalent amount to their shareholding distributed to them in cash as opposed to shares in a new entity. Her Honour found (at [27]) that these foreign shareholders did not constitute a different class, as, despite being required to dispose of their securities, this did not put them, as a group, at a practical disadvantage compared to the shareholders eligible to participate in the scheme.
[29]
Correspondence of Mittleman
114 As noted above, Mittleman now holds 10.09% of the VRL shares on issue.
115 On 11 September 2020, MinterEllison, the solicitors acting for VRL, received a letter from Clifford Chance, the solicitors acting for Mittleman, regarding the Proposed Schemes.
116 One issue that arises from that correspondence is whether or not there has been full and fair disclosure to all shareholders.
117 The explanatory statement sent out by VRL is required to disclose any information that is "material" to a member's decision whether or not to agree to the scheme: see In the matter of BIS Finance Pty Limited; In the matter of Artsonig Pty Limited [2017] NSWSC 1713 at [28] per Black J.
118 In Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [2018] WASC 308, Vaughan J observed the following with respect to the standard of disclosure required of an explanatory statement:
[54] … The emphasis is on ensuring full disclosure so that the members are properly informed in their consideration of the proposed scheme. Thus the explanatory statement must provide proper disclosure conformable with s 411(3) and s 412 of the Act. What is required is a statement of all of the main facts as will enable shareholders to exercise their judgment on the proposed scheme. The Court is also concerned with the notion of a fair picture being presented; there should not be an unbalanced presentation. The expectation is one of forthrightness. Cards must be placed on the table. The Court must be satisfied, at least to a prima facie level, that there has been proper disclosure with nothing misleading or deceptive in any material sense.
[55] In each case the extent of disclosure required is a question of fact and degree dependent on the nature of the scheme and the context in which it is advanced for consideration. This must be considered in a practical and commercially realistic way having regard to the complexity of the proposed scheme.
(Citations omitted)
119 In my view the Scheme Booklet provides sufficient information and proper and fair disclosure to inform a VRL shareholder's decision whether or not to vote for either of the Proposed Schemes.
120 By letter dated 9 October 2020, the solicitors for Mittleman made the following further observations way of "Executive Summary":
[7] It is clear from the documents provided by VRL to date (including the Structure A Shareholders' Deed and the Structure B Shareholders' Deed) that the Proposal is so prejudicial to VRL Shareholders (including our client), unfair and oppressive that, in our client's respectful view, it should not, in its current form, be put by the Board of VRL to VRL Shareholder for approval.
[8] As we articulate in this letter, the Proposal is objectional [sic] for the following reasons:
(a) under Structure B 'VRC Related Shareholders' (as defined at paragraph 12 below) (who are not entitled to vote to approve Structure A) are entitled to use the prospect of them voting their ~40% shareholding in VRL to seek approval of Structure B with its lower consideration and restructure rights. As such, the Proposal will compel the non-VRC-Related Shareholders' to vote in favour of Structure A to avoid the worse financial outcome under Structure B. This coercive effect is unfair to the non-'YRC Related Shareholders', and contrary to the purposes of s 602 of [the Act];
(b) the terms of Structure Band the Structure B Shareholders Deed provide some or all of the 'VRC Related Shareholders' with material rights and benefits not available to the non-'VRC Related Shareholders' with the effect that the respective rights of the 'VRC Related Shareholders' and the non-'VRC Related Shareholders' are so dissimilar that it will be impossible for them to consult together regarding Structure13 with a view to their common interest. The effect of these material rights and benefits is that the 'VRC Related Shareholders' should be considered a 'separate "class" of VRL Shareholders for the purposes of approving Structure B;
(c) because each of Structure A and Structure B have been structured to achieve, through different means, the same, or substantially the same, overall outcome for BGH and the 'VRC Related Shareholders', each of Structure A and Structure B and their related schemes are so interlinked and inextricably related that the 'VRC Related Shareholders' should be recognised as acting in concert with BGH and therefore considered 'associates' of BGH for the purposes of Structure B (as is already acknowledged by the 'VRC Related Shareholders' for the purposes of Structure A). As a result, the 'VRC Related Shareholders' should either not vote in favour of the resolution to approve Structure B, or should vote in a separate 'class' of VRL Shareholders for the purposes of approving Structure B;
(d) to the extent that the material rights and benefits provided under Structure B and the Structure B Shareholders Deed to some or all of the 'VRC Related Shareholders' are not class-creating, those rights and benefits nonetheless constitute extraneous interests that are of such importance to the 'VRC Related Shareholders' that any votes of a 'VRC Related Shareholder' in favour of Structure B should be disregarded (see further section E). To that end, any votes by 'VRC Related Shareholders" at any meeting of shareholders to consider Structure B should - at a minimum - be tagged; and
(e) the terms of Structure B and the Structure B Shareholders Deed reflect an intention of ensuring that as few non-'VRC Relate Shareholders' as possible will hold as small a (direct or indirect (as applicable)) interest in VRL as possible, by way of compulsory share disposal obligations that are likely to be on terms (particularly as to price) that are highly unfavourable to those non-'VRC Related Shareholders' and highly favourable to BGH and the 'VRC Related Shareholders'. These elements of Structure B and the Structure B Shareholders Deed are inherently unfair on many of the non-'VRC Related Shareholders', and contrary to the purposes of section 602 of [the Act]…
(References omitted.)
121 Certain of the complaints raised have been covered by further refinement to the Scheme Booklet, including the tagging of votes by 'VRC Related Shareholders' to approve the Structure B Scheme(as noted at [108] above). As to unfairness, coercion and class issues, these will be addressed at the second hearing.
122 As indicated by reference to legal principles, it is not appropriate for the Court to investigate and determine finally the issues raised in the letter. Mittleman will have ample opportunity to raise objections at the second hearing. Mittleman chose not to appear on 9 October 2020, and Mr P Crutchfield QC (lead Counsel for the Plaintiff) addressed each of the issues raised by Mittleman. Without a contradictor at the hearing on 9 October 2020 to reply, it is not appropriate for this Court now to finally determine the matters raised in the letter. All I say now is that the issues raised would not unquestionably lead to a refusal to approve the Schemes at the second hearing. There is a basis on the evidence before the Court to conclude at this stage that the Schemes should proceed as fit for consideration by the members.
[30]
Other observations
123 Other orders will be made in line with recent decisions of the Court dealing with aspects relating to the conduct of the Scheme Meetings, proposed dispatch procedures, and the holding of virtual scheme meetings.
124 I am satisfied that ASIC has had reasonable opportunity to consider the Proposed Schemes and the explanatory statement, and to appear at the first court hearing if it chose to do so, and that ASIC has no objections at this stage.
125 I note that the VRL directors have confirmed that all statements of fact contained in the Scheme Booklet in relation to VRL are true and accurate in all respects and are not misleading or deceptive, and that all information material for disclosure has been fully and accurately disclosed and is contained in the Scheme Booklet.
126 I also note that the draft Independent Expert's Report ('IER') of Grant Samuel & Associates Pty Ltd ('Grant Samuel') is before the Court.
127 In the opinion of Grant Samuel, the Proposed Schemes are fair and reasonable, and as such the Proposed Schemes are in the best interests of shareholders of VRL as a whole in the absence of a superior proposal.
128 The IER does not raise any issue that would lead to the Court refusing to approve either of the Proposed Schemes at a second hearing.
I certify that the preceding one hundred and twenty-eight (128) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Middleton.