- Australian Securities Commission v Marlborough Gold Mines Ltd

Supreme Court of NSW|2024-02-21|Before: Black J

Solicitors: King & Wood Mallesons (Plaintiff) Corrs Chambers Westgarth (Acquirer) File Number(s): 2024/45098

Nature of the application and background

By Originating Process filed on 5 February 2024 the Plaintiff, A2B Australia Limited ("A2B"), seeks orders that it convene a meeting of its members to consider a proposed scheme of arrangement under s 411 of the Corporations Act 2001 (Cth) ("Act") and directions under s 1319 of the Act as to the manner in which that meeting is to be held.
By way of background, A2B is an Australian public company limited by shares, previously known as Cabcharge Australia Ltd, and is listed on ASX. It operates an Australian taxi network technology and payment solutions business for the personal transport industry, including brands of taxi services, a taxi and booking dispatch platform and the Cabcharge payment solution. On 22 December 2023, A2B announced to Australian Securities Exchange ("ASX") that it had entered into a Scheme Implementation Agreement with ComfortDelGro Corporation Australia Ltd ("CDC") and ComfortDelGro Corporation Ltd ("CDG"), by which CDC had agreed that it or its wholly owned nominee would acquire all of the issued shares in A2B, other than those already held on behalf of Excluded Shareholders (defined broadly, as members of the CDC Group). The proposed Scheme provides that each A2B shareholder recorded on the register on the record date for the Scheme, other than Excluded Shareholders, will receive $1.45 per A2B share as cash consideration from the acquiring entity.

Affidavits and other evidence

A2B reads the affidavit dated 5 February 2024 of its solicitor, Mr Alexander Morris, who exhibits documents relating to the proposed scheme of arrangement, including an organisation extract in relation to A2B obtained from the Australian Securities & Investments Commission ("ASIC").
By an affidavit dated 20 February 2024, Mr Howard Edelman, who is the General Counsel and Company Secretary of A2B, outlines the nature of A2B's business, to which I have referred above. Mr Edelman also outlines the terms of the proposed scheme and identified several members of the CDC Group who are "Excluded Shareholders" (as defined) for the purpose of the scheme. Mr Edelman there addressed the scheme consideration, conditions precedent to the scheme, exclusivity and break fee provisions which are in common form and the manner in which the scheme meeting is proposed to be conducted. He referred to an independent expert's report prepared by Lonergan Edwards which had concluded that the scheme was fair and reasonable and in the best interests of A2B shareholders, other than Excluded Shareholders. Mr Edelman also addressed the identity of the proposed chair and alternate chair of the scheme meeting and their consents to act. He also referred to a proposed one-off payment to be made to the executive chair of A2B, Mr Bayliss, in connection with the implementation of the scheme, by reference to his role in the sale of A2B properties, subject to specified conditions, and that matter is disclosed in the scheme booklet.
Mr Edelman also addressed the then draft of the scheme booklet, which has since been amended following comments received from ASIC, the process by which documents would be sent to A2B shareholders and the process adopted for verification of the scheme booklet, which were also in common form. Mr Edelman noted that A2B proposed to conduct an information line for shareholders and an outbound call campaign in respect of A2B shareholders holding 10,000 or more A2B shares, and exhibited proposed scripts for those communications. His affidavit also exhibited proposed reminder to vote emails which were in uncontroversial form. Mr Edelman also referred to an invitation to four major proxy advisory firms to meet with the chair of A2B and with Mr Edelman as company secretary of A2B. The proposed script for that meeting or any powerpoint to be made available at that meeting was not exhibited to his affidavit; the Court has had no opportunity to review it; and its content will need to be addressed at the second Court hearing. By an affidavit dated 20 February 2024, Mr Mark Vanderneut, who is also a solicitor acting for A2B, set out correspondence from ASIC in connection with the proposed scheme.
By an affidavit dated 19 February 2024, Mr Kevin Harris, who is the Company Secretary of CDC Private Mobility Pty Ltd, and also the Company Secretary and Chief Financial Officer - Australia of CDC, refers to CDC's and CDG's entry into the Scheme Implementation Agreement in respect of the proposed scheme, exhibits a deed poll executed by CDC, CDG and the acquiring entity in favour of holders of scheme shares, and refers to the verification process adopted in respect of information concerning the CDC Group which was contained in the scheme booklet, which was also in common form.
A2B also tendered correspondence from ASIC in respect of the scheme. By a letter dated 20 February 2024, ASIC reserved its position as to s 411(17)(b) of the Act to the second Court hearing, in accordance with its usual practice; indicated that it had been given at least 14 days of the hearing of the application and had had a reasonable opportunity to examine the terms of the proposed scheme and draft explanatory statement; and advised that it did not propose to appear or make submissions or intervene to oppose the scheme at the first Court hearing. By two further letters also dated 20 February 2024, ASIC gave relief in respect of paragraphs 8302(h) and 8305 of Part 3 of Schedule 8 of the Corporations Regulations in relation to the scheme. A2B also tendered, in marked up and clean versions, a revised scheme booklet (Ex P1) which was amended to take account of comments made by ASIC in respect of the earlier draft of the scheme booklet; a revised script for its proposed call campaign which also had regard to ASIC's comments; and a helpful summary of changes made to those documents (MFI1).

Applicable principles

The principles which apply to the exercise of the Court's discretion at a first Court hearing in respect of a scheme of arrangement are well established. I am satisfied of several matters that are necessary to convene a scheme meeting, namely that A2B is a "Part 5.1 body"; the proposed scheme is an "arrangement" within the meaning of s 411 of the Act; there has been proper disclosure to members, supported by the evidence of the verification processes to which I referred above; and ASIC has had reasonable opportunity to examine the proposed scheme and scheme booklet, to make submissions and has had 14 days' notice of the proposed hearing date of the first Court hearing.
In order to convene a scheme meeting, the Court must also be satisfied that the scheme is fit for consideration by A2B'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], to which Mr Ahmed refers, 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]. Mr Ahmed recognises the importance of the Court being satisfied that there has been sufficient disclosure to those who will be affected by the scheme of its details and effect. Subject to the several matters that I address below, the proposed scheme is an orthodox all-cash acquisition scheme and there is nothing in the terms of the scheme that would warrant the Court declining to permit its consideration by members.

Other aspects of the proposed scheme

Mr Ahmed also refers to several other aspects of the proposed scheme. First, he notes that cl 3 of the scheme sets out several conditions precedent to the implementation of the scheme, which are not out of the ordinary. Second, Mr Ahmed notes that the Scheme Implementation Agreement contains certain exclusivity and break-fee provisions, including "no existing discussions", "no-shop", "no-talk" and "no due diligence" obligations; cll 10.5-10.6 set out customary exceptions to these obligations; cl 10.7 requires A2B to notify CDC if there is an unsolicited approach with respect to a competing transaction; and cl 10.8 provides CDC with a "matching right" in respect of any competing transaction. I accept that provisions of this character are now commonplace in schemes of arrangement and generally accepted by the case law, if sufficiently disclosed in the scheme booklet: Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9] ; Re Villa World Ltd (2019) 139 ACSR 550; [2019] NSWSC 1207 at [23]; Re Aveo Group Ltd and Aveo Funds Management Ltd [2019] NSWSC 1348 at [44]. These provisions are adequately disclosed in the scheme booklet and otherwise give rise to no reason not to convene the scheme meeting.
Third, Mr Ahmed notes that cl 11 of the Scheme Implementation Agreement provides for A2B to pay a break fee of $1.82 million to CDC in certain circumstances. That break fee is not payable merely because A2B shareholders do not vote in favour of the scheme, and the amount of the break fee is approximately 1% of the equity value of A2B of $182 million as at 22 December 2023, as implied by the scheme consideration of $1.45 per share and the total issued capital of A2B, and is consistent with the maximum break fee contemplated by the Takeovers Panel's Guidance Note 7. I accept that a break fee of this character is also commonplace in schemes of arrangement and accepted by the case law, and these provisions give rise to no reason not to convene the scheme meeting.
Fourth, Mr Ahmed notes that, in order to comply with A2B's obligations under the Scheme Implementation Agreement, A2B proposes to accelerate the vesting of unvested employee share rights, provided the scheme becomes effective, and this matter is disclosed in section 7.3 of the scheme booklet. This vesting will not occur prior to the scheme meeting, and holders of the unvested rights will not be able to vote in respect of the scheme unless they otherwise have a right to do so as an A2B shareholder. This matter also gives rise to no reason not to convene the scheme meeting.
Fifth, the scheme booklet also discloses that A2B's executive chair, Mr Bayliss, will receive a one-off payment of $300,000, conditional on a change of control transaction occurring, including the scheme, in recognition of his role, inter alia, in respect of certain property transactions. I adopt the approach taken in cases including Re SMS Management & Technology Ltd [2017] VSC 257; Re Kidman Resources Ltd (2019) 375 ALR 760; (2019) 139 ACSR 122; [2019] FCA 1226; Re BINGO Industries Ltd [2021] NSWSC 798; Re RXP Services Ltd [2021] FCA 38 and Re Mainstream Group Holdings Ltd [2021] FCA 948. I accept this matter is sufficiently disclosed in the scheme booklet and that Mr Bayliss' interest arising from this matter does not prevent him from making a recommendation as to the scheme to A2B's shareholders. Mr Ahmed also submits and I accept that the proposed payment to Mr Bayliss likely does not require the creation of any separate classes in respect of the proposed scheme; and, in any event, A2B proposes to tag Mr Bayliss' shares when voting on the scheme occurs, so this question need not be resolved at the first Court hearing: Re Healthscope Ltd [2019] FCA 542 at [118].
Sixth, Mr Ahmed refers to the evidence of A2B's proposed communications with shareholders, as set out in Mr Edelman's affidavit, involving an outbound call campaign in respect of large shareholders and the dispatch of reminder to vote emails. Consistent with the approach taken in InvoCare, I have reviewed the scripts for those communications, I had no difficulty with them and I record that matter in this judgment. I note that information to be provided at a potential meeting with proxy advisers was not put before me and that matter will need to be addressed at the second Court hearing. Seventh, Mr Ahmed notes that a verification process has been undertaken by both A2B and the CDG companies addressed to the proposed scheme booklet. I have referred to the evidence of that process above and it supports the orders sought by A2B. Eighth, Mr Ahmed points out that the scheme booklet contains a report from an independent expert, Lonergan Edwards & Associates, which expresses the view that the scheme is fair and reasonable and in the best interests of A2B shareholders in the absence of a superior proposal, where the proposed scheme consideration is within its assessed valuation range.
Ninth, Mr Ahmed notes that A2B proposes to distribute the scheme booklet in an orthodox manner, depending on whether shareholders have made an election to receive shareholder communications electronically or in hard copy, or have not made such an election. However, Mr Ahmed draws attention to one issue which arises in respect of the notice of the scheme meeting to be given to its shareholders. Rule 5.2 of A2B's constitution provides that, subject to the terms of the constitution and the rights or restrictions attached to any shares or class of them, a "notice of general meeting" must be given in the manner authorised by rule 13.1. Rule 13.1 then provides that notices may be given to members by personal service or prepaid post to a member's registered address, fax to a fax number as supplied by the member, or, if a member does not have a registered address and has not supplied another address to the company for the giving of notices, by exhibiting it at the registered office of the company. That rule does not refer to distribution of notices by way of email. However, Mr Ahmed submits and I accept that rule 5.2 is not applicable here, where the scheme meeting is convened by the Court and is not a "general meeting" of shareholders. The Court can, under s 1319 of the Act, give procedural directions in relation to such a meeting which may not correspond with the procedural requirements of a general meeting convened under A2B's constitution: Re Australian Consolidated Press Ltd (1994) 14 ACSR 639 at 640. I am satisfied that the Court should here permit notice to be given to shareholders in the manner proposed by A2B, which is consistent with the recognition of electronic communications with shareholders in ss 110(1)(d) and 249J(3)(c) of the Act, to which Mr Ahmed refers, and with current scheme practice. The proposed notification and distribution of scheme material by email to A2B's shareholders who have nominated that they wish to receive communications in an electronic form will, appropriately, give effect to the choice which those shareholders have made as to how they wish to receive communications from A2B and, as Mr Ahmed points out, is consistent with A2B's previous practice of distributing corporate material by way of email to those shareholders who have elected to receive it in that way.
Mr Ahmed also points out that it is proposed that the scheme booklet will be sent to A2B shareholders by no later than 23 February 2024, and the scheme meeting is proposed to be held on 25 March 2024. This allows a period of 32 days from the sending of the notice to the date of the scheme meeting, longer than the 28 day notice period specified in s 249HA of the Act for meetings of members of listed companies. However, rule 13.5 of A2B's constitution provides that a notice of general meeting is taken to be effected on the day after it is posted, and in any other case, at the time that the letter would be delivered in the ordinary course of post. The latter provision would apply to a scheme meeting and may create uncertainty as to whether the notice period will be complied with in respect of scheme documents sent by post. Mr Ahmed submits and I accept that this uncertainty can and should be resolved by specifying the requisite notice period in the orders made by the Court convening the scheme meeting. The Court has power to do so, including by reducing the notice period that would otherwise apply: Re Equigold NL (No 2) [2008] FCA 826 at [5], [8]; Re Security Matters Ltd [2023] FCA 19 at [117]-[118].

Orders

For these reasons, I made the orders sought by A2B at the conclusion of the first Court hearing.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 March 2024

Corporations Act 2001(Cth)ss 110(1)(d), 249HA, 249J(3)(c), 411, 1319

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