- Australian Securities Commission v Marlborough Gold Mines Ltd

Particular aspects of the scheme

Following the practice noted by Barrett J in Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at 603; [2002] NSWSC 1177, Mr Williams draws several aspects of the scheme to the Court's attention. Pendal employee incentives and transaction related payments
Mr Williams points out that Pendal operates equity incentive schemes under which "Pendal Employee Rights" (comprising options, performance rights and restricted shares) have been issued to corporate staff, distribution staff and investment staff, which are described in section 5.10(a) of the scheme booklet. Under clause 4.4(b) of the SID, Pendal must ensure that, by no later than 5.00pm on the Effective Date (as defined), there are no outstanding Pendal Employee Rights, and it is a condition precedent to the scheme becoming effective that Pendal has done so before 8.00am on the Second Court Date (as defined). The manner in which Pendal proposes to comply with this requirement is described in section 5.10(b) of the scheme booklet and in paragraphs 44-52 of Mr Williamson's affidavit, to which I referred above. For employees other than certain Key Employees, Pendal Employee Rights will vest, lapse or be cancelled in accordance with their terms or by exercise of a discretion of the Pendal Board provided by the terms of issue. On the other hand, arrangements have been reached with the Key Employees which are described as "Incentive Rollover Arrangements" and provide for a portion of the Key Employee's existing Pendal Employee Rights as at the Effective Date to vest on or prior to the date on which the scheme becomes effective, so that the Pendal shares issued on vesting will be entitled to participate in the scheme; the remainder of the Key Employee's existing Pendal Employee Rights will lapse or be cancelled, on the basis that the relevant Key Employee will be provided with Perpetual equity-based incentives of equivalent value which will be subject to time-based vesting conditions consistent with those that applied to the lapsed or cancelled Pendal Employee Rights; and certain Key Employees will also be granted additional Perpetual equity incentives or rights to deferred cash payments to which are intended to "align their interests with the Combined Group's shareholders". Mr Williamson's evidence is that the Incentive Rollover Arrangements agreed with the Key Employees were the subject of commercial negotiations, and the structure adopted is intended to promote the retention of Key Employees following implementation of the scheme.
The commercial aspects of that approach are matters for Pendal and Perpetual. I accept that those arrangements do not have the result that holders of Pendal Employee Rights who are (or will become) Pendal shareholders are in a separate class of members by reason only that they also hold incentive rights: Re Cashcard Australia Ltd (2004) 48 ACSR 738; [2004] FCA 223; Re Foster's Group Ltd (No 2) [2011] VSC 547 at [38]-[43]; Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525; [2015] VSC 789 at [82].
Mr Williams also submits and I also accept that, to the extent that Key Employees will receive additional Perpetual equity incentives or deferred cash payments under their Incentive Rollover Arrangements, and that benefit is not available to other Pendal shareholders, it is a benefit obtained by them as employees and not as shareholders, which depends upon their continued service with the "Combined Group" following implementation of the scheme, and is directed to promoting the retention of the Key Employees to preserve the value of Pendal's business. Mr Williams submits that, to the extent this matter could be described as a "collateral benefit" and gives rise to a different commercial interest between shareholders, rather than different rights under a scheme (or different treatment of the same rights under a scheme), it does not require the creation of separate classes but may instead be relevant to the Court's discretion to approve the scheme at the second Court hearing: Re Boart Longyear Ltd (2017) 121 ACSR 328; [2017] NSWSC 567 at [69]; Re Trust Co (Re Services) Ltd as responsible entity of VitalHarvest Freehold Trust [2021] NSWSC 108 ("VitalHarvest") at [35]; Re PM Capital Asian Opportunities Fund Ltd [2021] FCA 1380 at [61]; Re Huon Aquaculture Group Ltd [2021] FCA 1170 at [33]. I also accept that any issue arising from that matter does not require that the Key Employees vote as a separate class and is sufficiently addressed by Pendal's "tagging" the votes of Key Employees, so that any impact of those votes can be identified at the second Court hearing and taken into account in the exercise of the Court's discretion: Re Mydeal.com.au [2022] NSWSC 1094 at [49]; Re 3Q Holdings Ltd [2022] FCA 1259 at [75].
Mr Williams also notes that, as disclosed in section 10.2 of the scheme booklet, a number of Pendal employees whose roles have been determined by the Pendal board to be critical to implementation of the scheme will be entitled to receive a one-off cash "Retention Payment" (as defined), the aggregate amount of which will be no more than $3.0 million; and Pendal also proposes to make one-off "Discretionary Payments" (as defined) to certain employees in recognition of their contribution to facilitate implementation of the scheme, the aggregate amount of which will be no more than $2.5 million. I accept that employees who receive either a Retention Payment or Discretionary Payment are not in a separate class by reason only of the payments made to them, for the same reason the holders of equity incentives are not in a separate class.
Mr Williams points out that Pendal's chief executive officer, Mr Nick Good, is eligible to receive a Retention Payment and Discretionary Payment of up to $804,840 upon implementation of the scheme; under his existing short term incentive plan, he will be entitled to scheme related payments of $2,112,989 referable to key performance indicators; and these payments are disclosed in section 10.2 of the scheme booklet. The chairman's letter and section 2.1 of the scheme booklet also draw that matter to shareholders' attention as relevant to their consideration of Mr Good's participation in the Pendal directors' unanimous recommendation in relation to the scheme. Mr Williams submits and I accept that, where that disclosure is made, the fact that Mr Good makes a recommendation with other directors is not a reason to decline to convene the scheme meeting: Re Kidman Resources Ltd [2019] FCA 1226 at [115]; Villa World at [38]; Re GBST Holdings Ltd [2019] NSWSC 1280 at [24]-[30]; Re DWS Ltd [2020] FCA 1590 at [41]-[49]. These matters do not give rise to any reason not to convene the scheme meeting. Funding of scheme consideration and performance risk
Mr Williams submits and I accept that the provision for payment of the cash scheme consideration to a trust account operated by Pendal, prior to transfer of the Pendal shares, is a sufficient safeguard against the risk that scheme shareholders will suffer delay or default in the provision of the scheme consideration after their shares have been transferred to PACL, so that scheme shareholders will not be relegated to the remedy of suing on the deed poll: Re APN News & Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 ("APN News & Media"); Re Signature Gold Ltd [2017] FCA 766 at [66]; DUET Finance at [47]. He also notes that, as described in sections 6.10 and 7.6 of the scheme booklet, Perpetual proposes to fund the cash component of the scheme consideration through a debt facility entered into with four relationship banks. There is no reason to doubt the availability of funding for the the scheme consideration and payment of related transaction costs. Proposed manner of dispatch of scheme materials to Pendal shareholders
Mr Williams notes that details of the proposed dispatch of scheme materials are set out in Ms Hawkin's affidavit dated 21 November 2022. Those materials will be sent either electronically or in hard copy in accordance with shareholders' previous elections, or in hard copy for shareholders who have previously made no such election. Mr Williams submits and I accept that the proposed manner of dispatch is consistent with ss 110D-110E of the Act. This matter does not give rise to any reason not to convene the scheme meeting. Other shareholder communications
Pendal seeks an order approving the proposed script for an outbound call campaign to Pendal shareholders to be conducted by Morrow Sodali, consistent with the principle that the Court should approve any proposed supplementary disclosure in circumstances where it is being called upon to approve the explanatory material: Re Centro Retail Ltd [2011] NSWSC 1320 at [11]; Re Walsh & Company Investments Ltd [2020] NSWSC 1746 at [66]; Re Tassal Group Ltd [2022] NSWSC 1414 ("Tassal") at [34]. The proposed outbound call campaign is described in Ms Hawkins' affidavit dated 21 November 2022, to which I referred above. I have reviewed the proposed script, which reflects the information contained in the scheme booklet, and there is no reason not to approve it. Ms Hawkins also refers to the reminder communications which Pendal proposes to have LMS send to Pendal shareholders to remind them to vote ahead of or at the scheme meeting, which are uncontroversial in character.
Pendal also draws the Court's attention to the inbound call script for the shareholder information line and a presentation document proposed to be used in meetings with proxy advisers, although no order is sought approving the form of such documents is necessary for the reasons explained in Re Tassal Group Ltd [2022] NSWSC 1414 at [33], [35]. Mr Williams submits that the relevant scripts do not travel beyond the information in the scheme booklet and present information in a balanced manner, draw attention to advantages and disadvantages of the scheme, and encourage shareholders to read the scheme booklet in its entirety. I have reviewed those documents and I did not raise any concerns in respect of them at the first Court hearing. These matters do not give rise to any reason not to convene the scheme meeting. Exclusivity
Clause 11 of the SID imposes "no talk", "no shop" and notification obligations on Pendal and confers a matching right in favour of Perpetual. The "no talk" obligation is subject to a fiduciary exception as set out in cl 11.4 of the SID. Mr Williams submits and I accept that exclusivity provisions in this form are now commonplace in schemes of arrangement and not inconsistent with Guidance Note 7: Lock-up devices issued by the Takeovers Panel: Villa World at [23]. In reviewing such provisions, the Court will consider whether any exclusivity period is for no more than a reasonable period capable of precise ascertainment; whether any exclusivity clause directed at dealing with an unsolicited alternative merger proposal is subject to a fiduciary carve out; and whether the provision is clearly disclosed in the explanatory statement sent to shareholders: Re TPG Telecom Ltd [2020] NSWSC 772 ("TPG") at [22].
I accept that the exclusivity period is here defined in the SID and capable of precise ascertainment. It lasts from the date of the SID until the earlier of the termination of the SID; or the End Date 13 June 2023 or such other date as is agreed by Perpetual and Pendal. Although the End Date is a date well beyond the date of the proposed scheme meeting, either party may terminate the SID if the scheme resolution is not approved at the scheme meeting by the requisite majorities (SID, cl 16.1(c)), so the exclusivity period will not operate as a fetter upon Pendal's assets if the scheme does not proceed: VitalHarvest at [40]. With that limitation, I accept that the exclusivity period of approximately 10 months between the date of the SID and the End Date is a reasonable period given the complexity and size of the transaction and the need for foreign regulatory approvals. I also recognise that the "no talk" restriction is subject to the overriding obligation not to breach the directors' fiduciary and statutory duties under cl 11.4 of the SID and, although the "no shop" restriction is not subject to this exception, that has been accepted in the case law: Re DUET Management Company I Ltd [2013] NSWSC 817 at [24]; Re Aveo Group Ltd and Aveo Funds Management Ltd [2019] NSWSC 1348 at [44]. The exclusivity provisions are sufficiently disclosed in section 4.17 of the scheme booklet and there is evidence that they were the product of arm's length negotiations between the parties. The exclusivity provisions do not give rise to any reason not to convene the scheme meeting. Reimbursement fee
Mr Williams draws attention to cl 12.2 of the SID which provides for Pendal to pay a Reimbursement Fee (as defined) to Perpetual if the scheme does not proceed in specified circumstances. Those circumstances do not include the failure by Pendal shareholders to approve the scheme at the scheme meeting or the failure of the Court to approve the scheme, and that provision is not a disincentive to Pendal shareholders in their consideration of the proposed scheme: Re Adelaide Bank Ltd [2007] FCA 1582 at [31]; Re Bolnisi Gold NL (No 2) (2007) 65 ACSR 510 at 513; [2007] FCA 2078. The Reimbursement Fee represents approximately 1% of the equity value of Pendal implied by the scheme consideration as at 25 August 2022, and I accept this is consistent with the guideline figure indicated by the Takeovers Panel in its Guidance Note 7, and that payment of "break fees" of that magnitude are now commonplace in schemes of this kind: TPG at [24]. There is evidence that the Reimbursement Fee was the product of arms' length commercial negotiations between Pendal and Perpetual, satisfying the expectation noted in APN News & Media at [46], [55]. A Reverse Reimbursement Fee (as defined) is also payable by Perpetual in certain circumstances under the SID. These matters do not give rise to any reason not to convene the scheme meeting. Ineligible foreign shareholders
Mr Williams notes that Pendal shareholders whose addresses are recorded in the share register as being outside Australia (and its external territories) and several other jurisdictions are Ineligible Foreign Shareholders (as defined) unless Pendal determines that it is lawful and not unduly onerous or impracticable to provide the Pendal shareholder with Perpetual shares. Although Ineligible Foreign Shareholders participate in the scheme, Perpetual shares will not be issued to them and the shares to which they would otherwise be entitled will be issued to a sale agent and sold by a sale facility, with the proceeds of sale distributed to them. These matters are disclosed in section 4.8 of the scheme booklet. Mr Williams submits and I accept that, consistent with the case law, Ineligible Foreign Shareholders need not constitute a separate class at the scheme meeting: Re Hills Motorway Ltd (2002) 43 ACSR 101 at 104; [2002] NSWSC 897. Deemed warranty
Clause 9.2 of the scheme provides that each scheme shareholder is taken to have given various warranties on the Implementation Date, including that all their Perpetual Shares are free from encumbrances and interests of third parties of any kind. The deemed warranty is sufficiently disclosed in the scheme booklet at section 10.6 and is also now commonplace in schemes: APN News & Media at [57]-[63]; Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26]; Re rhipe Ltd [2021] NSWSC 1170 at [26]. Section 411(7) of the Act
Mr Williams submits and I accept the question posed by s 411(17) of the Act is properly addressed on the application to approve the scheme at the second Court hearing: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [23]-[31] (Barrett J); TPG at [31]. Section 3(a)(10) of the Securities Act of 1933 (US)
Mr Williams points out that, if the scheme is passed by the requisite majorities and approved by the Court, Perpetual will rely on the Court's approval for the purpose of qualifying for exemption from the registration requirements of the Securities Act of 1933 (US), provided for by s 3(a)(10) of that Act, in connection with the issue of Perpetual shares under the scheme. I note that matter and the application of the exemption is otherwise appropriately deferred to the second Court hearing.

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Judgment (8 paragraphs)

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Legislation Cited (3)

Cases Cited (42)