By Originating Process filed on 27 September 2023, Thorn Group Ltd ("Thorn") applies for an order under s 411(1) of the Corporations Act 2001 (Cth) ("Act") that it convene a scheme meeting in respect of a proposed scheme of arrangement and associated orders, including directions under s 1319 of the Act.
By way of background, Thorn is admitted to the official list of the Australian Securities Exchange ("ASX") and is a financial services organisation that provides consumer and commercial leasing products, commercial and commercial financing solutions and has, since the sale of parts of its business, been operating as a strategic investor in the fintech sector. A major shareholder in Thorn, Somers Ltd ("Somers") holds 49.146% of shares in Thorn and has appointed two nominee directors to Thorn's board. Somers is a listed financial services investment holding company incorporated in Bermuda and its shares are traded on the mezzanine market of the Bermuda Stock Exchange, and it invests in the banking, asset financing and wealth management sectors, primarily in Australia and the United Kingdom.
On or about 18 August 2023, Somers made a non-binding and conditional indicative proposal to acquire the shares in Thorn in which it did not already have a relevant interest, by way of a scheme of arrangement. On about 24 August 2023, Somers made a binding and conditional offer, and then made a final binding offer on 26 August 2023, which removed a material adverse change condition precedent in respect of the proposed scheme. Thorn established an independent board committee ("IBC") to consider Somers' proposal, after the indicative proposal was made, comprising Mr Paul O'Neile who is an independent non-executive director of Thorn, Ms Alexandra Rose who is Thorn's General Counsel, General Manager Risk and Compliance and Company Secretary, and Mr Peter Lirantzis who is Thorn's Chief Executive Officer. The IBC does not include directors of Thorn who are Somers' nominees on its board.
On 21 September 2023, Thorn entered into a Scheme Implementation Deed ("SID") with Somers and announced the entry into the SID by an announcement to the ASX. The scheme consideration is $1.17 per scheme share, which will be reduced by the amount of any dividend or capital return announced after the date of the SID. Thorn has not yet declared or announced such a dividend or capital return, but proposes to announce its decision to the ASX whether to do so before 30 November 2023.
It is proposed that Thorn will advance an amount equal to the aggregate amount of the scheme consideration for all scheme shares to Somers, on the terms of a loan agreement entered into by Thorn and Somers on or about 18 September 2023, to allow Somers to pay the scheme consideration to scheme shareholders. That arrangement will be subject to requisite shareholder approvals at a general meeting held prior to the scheme meeting, comprising a special resolution passed by more than 75% of votes by Thorn shareholders (other than excluded shareholders) under s 260B of the Act to approve financial assistance in respect of the scheme, and a related party transaction resolution under s 208 of the Act which requires a simple majority of more than 50% of the votes cast by Thorn shareholders (other than excluded shareholders).
I made the orders sought by Thorn at the conclusion of the hearing on 20 October 2023. These are my reasons for doing so. I have drawn on Mr Giles' helpful submissions in this judgment.
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Affidavit evidence
Thorn reads the affidavit dated 27 September 2023 of its solicitor, Mr Sommer, who exhibit a company extract of the records of Australian Securities and Investments Commission ("ASIC") in relation to Thorn.
Thorn also reads the affidavit dated 19 October 2023 of Mr Peter Lirantzis, who (as I noted above) is the Chief Executive Officer of Thorn. Mr Lirantzis outlines the events leading to the scheme, which I noted above, and the operation of the IBC. Mr Lirantzis refers to the loan agreement between Thorn and Somers, to which I have referred above, the necessary statutory approvals for that arrangement, and the recommendation made by Thorn's independent director that Thorn shareholders vote in favour of the scheme in the absence of a superior proposal and subject to the independent expert continuing to conclude that the scheme is in the best interests of Thorn shareholders. Mr Lirantzis also outlines the process which has been adopted for verification of Thorn Information (as defined) in the explanatory booklet, which is in common form, and refers to Thorn's proposed announcement of the second Court hearing to the ASX and on its website, the proposed conduct of the scheme meeting as a "hybrid" meeting, and the proposed dispatch of documents relating to the scheme meeting to Thorn shareholders in hard copy or electronic form as applicable. Mr Lirantzis also refers to Thorn's engagement of Georgeson Shareholder Communications Australia Pty Ltd to conduct an inbound shareholder information telephone line in relation to the scheme, and exhibits a proposed call script to his affidavit. It is not proposed that Thorn will undertake an outbound communications campaign with shareholders in respect of the proposed scheme. Mr Lirantzis also addresses the interests of and consent to nomination of the chair and alternate chair of the scheme meeting.
By his affidavit dated 18 October 2023, Mr Alasdair Younie, a non-executive director of Somers, addresses the verification of Somers Information (as defined) contained in the explanatory booklet, which was also in common form. Mr Younie also addresses Somers' execution of a deed poll in favour of Thorn shareholders on 17 October 2023 and a copy of that deed poll is exhibited to his affidavit.
By his second affidavit dated 19 October 2023, Mr Sommer refers to correspondence with ASIC in relation to the scheme. Thorn also tenders a letter dated 19 October 2023 from ASIC to Thorn in common form, which reserves ASIC's position under s 411(17) of the Act to the second Court hearing and indicates that ASIC did not propose to appear to make submissions or intervene to oppose the scheme at the first Court hearing.
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Applicable principles
As Mr Giles points out, the principles governing an application for orders to convene a meeting of members under s 411(1) of the Act are well settled: Re Villa World Ltd (2019) 139 ACSR 550; [2019] NSWSC 1207 ("Villa World") at [15]-[16]; Re Kidman Resources Ltd (2019) 375 ALR 760; [2019] FCA 1226 ("Kidman Resources") at [22]; Re Nitro Software Ltd [2023] NSWSC 13 at [11]-[13]; Re InvoCare Ltd [2023] NSWSC 1180 ("InvoCare") at [14]-[16].
Mr Giles submits and I accept that the Court may make an order under s 411(1) if a compromise or arrangement is proposed between a Part 5.1 body and its members or any class of them; application for the order is made in a summary way by the body; 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 the Court is satisfied that ASIC has had a reasonable opportunity to 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 make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory booklet. He submits and I accept that Thorn is a company registered under the Act and a Part 5.1 body for the purposes of s 411; the proposed change of control transaction under the scheme is an 'arrangement' within the meaning of s 411 of the Act; ASIC has had notice of the scheme and an opportunity to consider the scheme and has indicated its position as noted above. Mr Giles points out that Thorn has complied with relevant provisions of the Supreme Court (Corporations) Rules 1999 (NSW) ("Rules"), by provision of the company search of Thorn as required by r 2.4(2) of the Rules; by confirming the matters concerning the chair and alternate chair for the proposed scheme meeting as required by r 3.2 of the Rules, by Mr Lirantzis' evidence on information and belief as to those matters; and by the proposed draft orders to convene the scheme meeting identifying the scheme as required by r 3.3(1) of the Rules.
Mr Giles also points out that Thorn has obtained a report from independent experts, Messrs De Cian and Butterfield of Grant Thornton, as to whether, in the experts' opinion, the scheme is fair and reasonable and in the best interests of Thorn shareholders, and they express the opinion that the scheme is fair and reasonable and in the best interests of Thorn shareholders in the absence of a superior proposal, for the reasons set out in their report. As I have noted above, the information concerning Thorn and Somers in the explanatory booklet have each been subject to verification procedures in common form. Thorn proposes to give notice of the second Court hearing by an announcement to the ASX and a website announcement by Thorn and I accept that the Court should dispense with the requirement under r 3.4 of the Rules to publish an advertisement in a newspaper on that basis, as contemplated by paragraph 26(f) of Practice Note SC Eq 4, which reflects the Practice Note - Harmonisation in schemes of arrangement as developed by the Committee for the Harmonisation of Rules of the Council of Chief Justices of Australia and New Zealand ("Harmonised Practice Note") and consistent with the approach taken in InvoCare at [22].
Mr Giles also notes that it is proposed that the scheme meeting will be a hybrid meeting and notes that Thorn proposes that proxy forms for the scheme meeting and the general meeting in respect of the statutory approvals that I noted above be submitted at the same time, although that has the result that the proxy submission time for the scheme meeting is 49 hours prior to commencement of the proposed scheme meeting, rather than 48 hours as specified in s 250B(1) of the Act and cl 44(a) of Thorn's constitution. I am satisfied that the Court should make the necessary order to allow that approach where the extension of that time period is short and the proxy forms to be lodged by the proxy deadline each relate to voting on the inter-dependent resolutions to be considered at the general meeting and the scheme meeting, consistent with a similar order made in Re CSG Ltd [2019] NSWSC 1905 at [24]-[25].
Mr Giles also submits that the principles which apply to the exercise of the Court's discretion are well understood. The Court must be satisfied that the scheme is fit for consideration by Thorn's shareholders in the sense that it is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed; and that members are to be properly informed as to the nature of the scheme before the scheme meeting: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504; Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44], cited with apparent approval in Re CSR Ltd (2010) 183 FCR 358; [2010] FCAFC 34 at [58]; Villa World at [15]-[19]; Re PropTech Group Ltd [2022] FCA 1606 at [19]; InvoCare at [16]-[17]. Mr Giles submits and I accept that the scheme is an orthodox all-cash acquisition and there is nothing in the terms of the scheme that would warrant the Court declining to permit its consideration by members. I accept that proposition, while recognising the substantial shareholding held by Somers and the proposed funding arrangements are unusual features of the proposed scheme.
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Additional matters
Mr Giles draws attention to several additional matters with respect to the scheme, consistent with the approach contemplated by Barrett J in Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at 603.
First, he points out that the scheme consideration will be funded by Thorn providing a loan to Somers under the loan agreement which I noted above, which is conditional on the scheme becoming effective and upon approval by Thorn shareholders at a general meeting (to be held immediately before the scheme meeting) of the provision of financial assistance by Thorn to Somers for the purposes of s 260B of the Act ("Financial Assistance Resolution") and the related party transaction between Thorn and Somers for the purposes of s 208 of the Act ("Related Party Transaction Resolution") (together, "Scheme Consideration Resolutions"). Mr Giles notes that the explanatory booklet contains disclosure regarding the Scheme Consideration Resolutions and includes the notice of general meeting; the approval of the Scheme Consideration Resolutions are conditions for the scheme to proceed; and the approval of the scheme (and it becoming effective) is a condition for the loan to be provided by Thorn to Somers. He also points out that the resolution approving the scheme and the Scheme Consideration Resolutions are inter-dependent resolutions, so unless each are approved, the scheme and the loan cannot proceed. The amount of the loan is also to be paid by Thorn to the trust account from which the scheme consideration is paid, rather than to Somers, addressing any credit risk issue in that regard. I accept that these steps, which are taken to deal with the issues of financial assistance and financial benefit to a related party, are consistent with the case law and do not provide any reason not to convene the scheme meeting: Re Clough Ltd [2013] FCA 1149 at [4]; Re ThinkSmart Ltd [2022] FCA 1314 at [42]-[43].
Second, Mr Giles recognises that Somers, which has executed the deed poll, is a company incorporated in Bermuda. He submits and I accept that, consistent with the approach taken in Re Blackmores Ltd [2023] FCA 624 at [15]-[22] and Re Newcrest Mining Ltd [2023] FCA 1080 at [41], and this Court's guidance in paragraph 28(a) of the Harmonised Practice Note, evidence concerning foreign law advice in relation to the execution or enforceability of the deed poll as against Somers would only be necessary if a real uncertainty or issue existed in that respect.
Third, Mr Giles addresses the question of performance risk. He notes that clause 4.2(a) of the scheme of arrangement adopts the conventional step of making the transfer of Thorn shares to Somers subject to the payment of the scheme consideration, so that no transfer of Thorn shares may occur unless and until the total scheme consideration to which Thorn shareholders are entitled has been paid into a trust account for the benefit of those shareholders. He also points to the deed poll given by Somers in favour of the Thorn shareholders. He submits and I accept that these are well established means of managing performance risk: Re ELMO Software Pty Ltd [2023] NSWSC 12 ("ELMO") at [27]-[28]. He also submits and I accept that, where Somers is not a special purpose vehicle, the issue noted at paragraph 28(b) of the Harmonised Practice Note does not arise, and it would likely be displaced by the unusual funding arrangement here contemplated in any event.
Fourth, Mr Giles notes the recommendation of Thorn's independent director, in the explanatory booklet, that Thorn shareholders vote in favour of the scheme. The other Thorn directors who are not members of the IBC and are nominees of Somers on its board do not make a recommendation on whether or not Thorn shareholders should vote on the scheme in the explanatory booklet. The explanatory booklet discloses, in Sections 1.3, 2.2, 3 and 12.2 where the independent director's voting intention and recommendation is stated, his interests and dealings in Thorn shares. I accept that these interests do not require the independent director to refrain from making a recommendation, given the disclosure of his interests in the explanatory booklet: Kidman Resources at [115]; Re DWS Ltd [2020] FCA 1590 at [41]-[49]; Re Intega Group Ltd [2021] NSWSC 1434 at [22]; Re Kyckr Ltd [2022] NSWSC 1316 at [18]; Re Pendal Group Ltd (No 2) [2022] NSWSC 1648 at [25].
Fifth, Mr Giles addresses the question of deemed warranties and notes that cl 8.4 of the scheme of arrangement provides for a deemed warranty that each Thorn shareholder's shares are fully paid and free of encumbrances. I accept that the inclusion of clauses of this kind does not prevent the making of orders under s 411(1), provided that the clause is properly disclosed in the explanatory booklet: ELMO at [32]. These matters are disclosed in sections 1.9 and 9.2(g) of the explanatory booklet and also referred to in Part A of the Frequently Asked Questions at section 3 of the explanatory booklet.
Sixth, in respect of the proposed dispatch of documents and email reminders. Mr Giles notes that Thorn has engaged Computershare Investor Services Pty Limited ("Computershare"), its share registry services firm, to dispatch documents relating to the scheme meeting to Thorn shareholders. These matters are sufficiently addressed by the proposed orders.
Seventh, Mr Giles notes that Thorn proposes that Computershare will send a reminder email to those Thorn shareholders who have elected to receive shareholder communications electronically, and a reminder letter to those Thorn shareholders who have elected to receive hard copy communications and whose registered address is in Australia, who have not yet lodged a proxy in advance of the general meeting and scheme meeting. The text of the proposed reminder email and letter has been disclosed to the Court in the evidence and I have no difficulty with them.
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Orders
For these reasons, I made the orders sought by Thorn at the conclusion of the first Court hearing on 20 October 2023.
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Decision last updated: 31 October 2023