- Australian Securities Commission v Marlborough Gold Mines Ltd

Applicable principles and submissions

Mr Hutton summarises the applicable principles in a now common form and I will address those principles in that common form. The Court's role at the first Court hearing in respect of a scheme is to determine, in the exercise of its discretion, whether to approve the convening of a scheme meeting and the explanatory statement if it is satisfied of several matters, namely that the plaintiff is a Pt 5.1 body; the proposed scheme is an "arrangement" within the meaning of s 411 of the Act; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the proposed scheme and explanatory statement, to make submissions and has had 14 days' notice of the proposed hearing date of the first Court hearing; the procedural requirements under the Supreme Court (Corporations) Rules 1999 (NSW) ("Rules") have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved: Re Orion Telecommunications Limited [2007] FCA 1389 at [5]; Re Staging Connections Group Ltd [2015] FCA 1012 at [19]; Re Wridgways Australia Ltd [2010] FCA 1187 at [30]; Re Ellerston Global Investments Ltd [2020] NSWSC 879 ("Ellerston") at [25]; Re Vocus Group Ltd [2021] NSWSC 630 at [12].
Mr Hutton recognises that a Court will not ordinarily summon a scheme meeting unless the scheme 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. He submits, by reference to authority, that the determination to convene the meeting is preliminary to the final determination which is to be made when the matter comes back to the Court for approval after the holding of the meetings that have been directed. The Court will consider whether the proposed scheme is fit for consideration at the proposed scheme 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 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; [1993] HCA 15; 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]; Re InvoCare Ltd [2023] NSWSC 1180 ("InvoCare") at [16]-[17].
I have summarised the principles which apply to the exercise of the Court's discretion whether to convene a scheme meeting in, among many cases, Re Villa World Ltd [2019] NSWSC 1207 ("Villa World") at [15]-[19] and, in Re Absolute Equity Performance Fund Ltd [2022] FCA 933 at [18]-[22], Halley J summarised these principles as follows: "The Court will not ordinarily make orders for the convening of a scheme meeting unless the scheme is of such a nature and cast on such terms that if it receives the statutory majority at the meeting, the Court would be likely to approve it on the hearing of an application that was not opposed: FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 (Street CJ, with whom Hutley and Samuels JJA agreed); approved in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15 at 504; Re Central Pacific Minerals NL [2002] FCA 239 at [8] ; CSR Ltd, Re CSR Ltd (2010) 183 FCR 358; [2010] FCAFC 34 at [12] . At the first court hearing, the Court exercises its supervisory jurisdiction in order to review the scheme and the explanatory statement and to raise any queries that it might have with the plaintiff: Alstom Signalling Solutions Pty Ltd, Re Alstom Signalling Solutions Pty Ltd v Alstom Transport Australia Pty Ltd [2016] FCA 838 at [21] (Gleeson J). The Court needs to be satisfied that there are no obvious flaws in the scheme and that there is an adequate explanation provided to persons who have a financial interest in the proposed scheme: Re Coca-Cola Amatil Ltd [2021] NSWSC 270 at [13] (Black J) (Coca-Cola Amatil). The Court should consider at the first court hearing whether the proposed scheme is not inappropriate and whether it is one that sensible business people might consider is of benefit to its members: Australian Leaders Fund Ltd v Equity Trustees Ltd, Re Australian Leaders Fund Ltd [2021] FCA 88 (Leaders Fund) at [15] citing Re Sonodyne International Ltd (1994) 15 ACSR 494 at 499 (Hayne J); Integra Mining at [11] (McKerracher J); and Amcom at [10] (McKerracher J). The Court does not need to be satisfied that no better scheme could have been proposed and ultimately that is a question for the members themselves to determine at the scheme meeting: Associated Advisory Practices Ltd, Re Associated Advisory Practices Ltd [2013] FCA 761 at [22] (Farrell J); Coca-Cola Amatil at [13]; and Leaders Fund at [15]. Although the second court hearing is when the Court makes its final determination, in practice, the first court hearing is where the Court will typically intervene if it has concerns. A reason that has been advanced for this is that the market views the approval by the Court of the convening of scheme meetings as providing assurance that the scheme, at least in form and substance, has received a preliminary clearance by the Court and that trading in the company's securities thereafter will proceed on that basis: Re Archaean Gold NL (1997) 23 ACSR 143 at 147; and Leaders Fund at [15]."
I am satisfied that each of the preconditions to the exercise of the Court's discretion in s 411 of the Act is satisfied in this case. Xref is a company registered under the Act and a Pt 5.1 body. The proposed scheme is an "arrangement" within the scope of s 411 of the Act where it involves the acquisition of the shares in Xref in return for consideration being paid to its shareholders. Xref must also prove that the scheme is bona fide and properly proposed, and the scheme here provides, in common form, for the acquisition of Xref's shares. ASIC has here had a reasonable opportunity to examine the proposed scheme and scheme booklet, to make submissions and has had the necessary notice of this hearing and, as I noted above, has indicated that it does not currently propose to appear to make submissions or intervene to oppose the scheme at this hearing. The procedural requirements under the Corporations Rules have been met, where I will dispense with the requirement for compliance with r 3.4 of the Rules to publish a notice of the second Court hearing in a national newspaper, where Xref will publish that notice on ASX in accordance with current scheme practice.
An independent expert retained by Xref, BDO Corporate Finance Australia Pty Ltd, has expressed the view that the scheme is fair and reasonable and Xref's board has unanimously recommended the shareholders vote in favour of the scheme, in the absence of a superior proposal and provided that the independent expert does not withdraw its conclusion that the scheme is in the best interests of Xref's shareholders. No apparent difficulty arises with the disclosure in the scheme booklet and the verification process adopted in respect of the scheme booklet. I accept that, subject to several further matters noted by Mr Hutton that I address below, there is nothing in the terms of the scheme, or in its effect on Xref shareholders, that would otherwise warrant the Court declining to approve the scheme at the second Court hearing, if it receives the statutory majorities required by s 411(4)(a)(ii) of the Act at the scheme meeting.

Further matters

Mr Hutton also addresses several further matters. First, Mr Hutton points out that the Xref board has determined that Mr Seymour and two other executives will receive bonus payments if the scheme completes and they continue their employment with Xref until 30 June 2025 or are made redundant, in lieu of short-term incentives the executives would have received if the scheme did not complete. The fact that Mr Seymour will receive this benefit is disclosed in the scheme booklet and I accept Mr Hutton's submission that, on that basis, it is open to Mr Seymour, as a director of Xref, to make a recommendation concerning the scheme: Re Kidman Resource Ltd (2019) 139 ACSR 112; [2019] FCA 1226 at [115]; Re DWS Ltd (2020) 148 ACSR 616; [2020] FCA 1590 at [41]-[49]; Re McGrath Ltd [2024] NSWSC 555 ("McGrath") at [25]. Mr Hutton also points out that Mr Seymour and the two other executives each hold shares in Xref. He submits and I accept that the fact they will receive these payments in relation to the scheme will not of itself result in them forming a separate class at the scheme meeting: Re Webster Ltd [2019] NSWSC 1907 at [33]; Re Nzuri Copper Ltd [2019] WASC 189 at [37]; McGrath at [25]. I accept that it is not necessary to tag Mr Seymour's and the two other executives' votes in these circumstances.
Second, Mr Hutton points out that it is a condition precedent to the scheme that, before 8am on the second Court date, there are no outstanding Xref options. Xref has issued some 6,375,100 Xref options to employees and which each entitle the holder to one Xref share. Section 3.7 of the scheme booklet indicates that the Xref board intends to resolve that all Xref options will lapse on the business day before the scheme record date. Mr Hutton also notes that it is anticipated that only 591,859 of these options will be exercised prior to that date, because the balance of the options have a strike price which exceeds the scheme consideration and, where an option is exercised, the shares issued in consequence will participate in the scheme. Mr Hutton also notes that 2,906,977 shares are to be issued to Dr Peter Langford before 5:00pm on 24 January 2025 under an earn-out payable by Xref in connection with its prior purchase of Voice Project Pty Ltd and he will be able to participate in the scheme. These matters give rise to no reason not to convene the scheme meeting.
Third, Mr Hutton points out that a break fee of $400,000 is payable by Xref to SEEK in the circumstances set out in cl 10 of the Scheme Implementation Deed ("SID"), which represents approximately 0.97% of the implied equity value of Xref, and a corresponding break free is payable by SEEK in the circumstances set out at SID cl 11. I accept that break fees are common features in schemes of arrangement and will be permitted unless the amount of the break fee is such that it could influence voting at the meeting to be convened or if there are some unusual circumstances: Villa World at [24]. The break fee is here consistent with the Takeover Panel's 1% guideline. This matter also gives rise to no reason not to convene the scheme meeting.
Fourth, Mr Hutton notes that the SID contains 'no shop' (cl 9.2), 'no talk' (cl 9.3) and 'no due diligence' (cl 9.4) restrictions upon Xref, and the 'no talk' and 'no due diligence' clauses are subject to a fiduciary carve out in cl 9.5. Each restriction applies for the "Exclusivity Period" which is relevantly the earlier of the termination of the SID and the end date, 30 June 2025, unless otherwise agreed. There is evidence that these provisions were the subject of commercial negotiations between Xref and SEEK and they are disclosed in the scheme booklet. I accept that exclusivity provisions in this form are now commonplace in schemes of arrangement and are not inconsistent with the Takeovers Panel's guidance as to "deal protection": Villa World at [23]. The Court is concerned to ensure that any exclusivity period should be for no more than a reasonable period, capable of precise ascertainment; an exclusivity clause directed at dealing with an unsolicited alternative proposal should be subject to a fiduciary carve out; and the provisions should be clearly disclosed in the explanatory statement sent to shareholders: Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9]; Re TPG Telecom Ltd [2020] NSWSC 772 at [22]; Re Isentia Group Ltd [2021] NSWSC 910 at [23]; Re Asaleo Care Ltd [2021] FCA 406 at [55]. Mr Hutton submits and I accept that there is nothing unusual in these provisions and the exclusivity period here is not unreasonable. This matter also gives rise to no reason not to convene the scheme meeting.
Fifth, Mr Hutton points out that the scheme provides for a deemed warranty by Xref shareholders that their shares will be free from encumbrances (cl 5.6 of the scheme), which is adequately disclosed in the scheme booklet. The case law has long accepted that approach: Re APN News and Media Ltd (2007) 62 ACSR 400 at [57]-[63]; [2007] FCA 770; Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26].
Sixth, Xref proposes to establish an inbound shareholder information line and also proposes to undertake an outbound telephone call program, and the scripts for these were in evidence. Xref draws these proposed communications to the Court's attention in accordance with the usual practice but no orders are sought approving them: Practice Note SC Eq 4 at [26(k)] and Invocare at [26]. In the course of submissions, I drew attention to one aspect of the outbound call script which might have caused difficulty and Xref, sensibly, indicated that it would amend that script to address that difficulty.

At a glance

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Judgment (6 paragraphs)

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Legislation Cited (2)

Cases Cited (38)