Australian Securities Commission v Marlborough Gold Mines Ltd

Affidavit and other evidence

1. Altium reads the affidavit dated 16 May 2024 of Mr Alexander Morris, a solicitor acting for it, which refers to the background to the transaction which I have set out above and exhibits an organisation extract in relation to Altium obtained from the records of the Australian Securities and Investments Commission ("ASIC") and a copy of the ASX announcement made by Altium on 15 February 2024 and the SIA which was attached to that announcement.
2. Altium also reads the affidavit dated 4 June 2024 of Ms Tanya Thomas, who is its company secretary. Ms Thomas provides information as to Altium and also outlines the structure of the proposed scheme of arrangement. She refers to a break fee of substantial size which would be payable by Altium to Renesas in certain circumstances, which do not include a failure by Altium shareholders to vote in favour of the scheme, and which represents approximately one percent of the equity value of Altium. She also refers to a substantially larger break fee payable by Renesas to Altium in specified circumstances, amounting to approximately 4.5% of the equity value of Altium implied by the scheme consideration. Ms Thomas also addresses exclusivity provisions in favour of Renesas Bidco.
3. Ms Thomas also refers to the manner in which the scheme meeting would be conducted, as a physical meeting, and refers to the consent of the proposed chair and alternate chair of the scheme meeting and to their interests in respect of the scheme. Ms Thomas also addresses the preparation of the scheme booklet and the provision of the scheme booklet to ASIC and the manner in which the scheme booklet would be despatched to Altium shareholders, and outlines the verification process undertaken by Altium in respect of the scheme booklet which was in common form. She also refers to proposed communications with Altium shareholders, including reminder communications, the operation of an inbound telephone shareholder information line, an outbound call campaign directed to "retail" shareholders in Altium, and a proposed engagement between Altium directors and major proxy advisers. Ms Thomas also refers to proposed meetings between Morrow Sodali, acting on Altium's behalf, and institutional shareholders of Altium, to provide information about the scheme and answer any questions that institutional shareholders may have and she refers to the fact that Morrow Sodali has already met with several institutional shareholders of Altium. Ms Thomas' evidence (Thomas 4.6.24 [69]) is that: "No slide presentation, script or other document has been prepared for use at these meetings. At these meetings, it is intended that Morrow Sodali and any other attendees (which may include directors of the Altium Board and/or employees of JP Morgan Securities Australia Limited, Altium's financial adviser in relation to the Scheme) will only communicate information about the Scheme that is consistent with the disclosure in the Scheme Booklet or other publicly available information regarding the Scheme." I will refer to the issues arising from that approach below.
4. Ms Thomas also noted that Altium proposed to make an electronic copy of the scheme booklet available on its website and a microsite for the scheme, which would also contain answers to frequently asked questions in a form put before the Court; Altium proposed to release several ASX announcements regarding the scheme between the first Court hearing and the scheme meeting; and that Altium proposed to give notice of the second Court hearing by releasing an ASX announcement in a specified form.
5. By an affidavit dated 4 June 2024, Mr Richard Leon, who is the interim Chief Financial Officer of Altium, addressed the treatment of employee share rights in respect of the proposed scheme, and outlined further retention arrangements in respect of executives of the Altium Group, excluding directors of Altium. By an affidavit dated 5 June 2024, Mr Daniel Natale, who is a solicitor acting for Altium in respect of the scheme, referred to the verification of several amendments to the scheme booklet.
6. By his affidavit dated 4 June 2024, Mr Takahiro Homma, who is vice president and general counsel of Renesas, referred to the SIA, the structure of the proposed scheme and the manner in which it would be funded, and the process adopted by Renesas and Renesas BidCo for verification of information relating to it contained in the scheme booklet. He also addressed the process for Renesas' approval of the final scheme booklet and the execution of a Deed Poll by Renesas and Renesas BidCo in favour of each scheme shareholder.
7. Altium also tendered a letter from ASIC, in customary form, which reserved its position as to s 411(17) of the Act to the second Court hearing, and otherwise indicated that ASIC did not seek to appear at the first Court hearing or oppose the making of orders convening the scheme meeting.

Applicable principles

1. Mr Williams submits and I accept that the Court's discretion to make an order under s 411(1) is enlivened 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; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) ("Rules") have been met; the scheme booklet provides proper disclosure to shareholders; 14 days' notice of the hearing of the application has been given to ASIC, or such lesser period as the Court or ASIC permits; 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; 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.
2. The evidence here establishes that ASIC has been given more than 14 days' notice as required under s 411(2) of the Act and Altium has complied with applicable requirements under the Rules, although it seeks a now common dispensation from the requirement under r 3.4 of the Rules for publication of a notice in the form of Form 6, consistently with Practice Note SC Eq 4 at [26(f)]. Altium has obtained a report from Kroll Australia Pty Ltd ("Kroll") expressing the opinion that the scheme is fair and reasonable and in the best interests of Altium shareholders. As I have noted above, the verification procedures undertaken in respect of information concerning Altium, Renesas and Renesas BidCo was in common form. I am satisfied that relevant procedural requirements in respect of this application are satisfied.
3. Mr Williams also refers to the principles which apply to the exercise of the Court's discretion whether to convene a scheme meeting, as summarised in, among many cases, Re Villa World Ltd [2019] NSWSC 1207 at [15]-[19]. He submits and I also accept that 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; 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 at [16]-[17]. Mr Williams also points out that the scheme is an all cash acquisition scheme, and is straightforward in its structure although substantial in size. He submits and I accept that there is nothing in the terms of the scheme or in its effect on Altium shareholders that would lead the Court to decline to permit its consideration by members, although I will address specific aspects of the scheme below.

Several additional matters

1. Consistent with the ex parte nature of the application, Mr Williams draws several aspects of the scheme to the Court's attention.
2. First, Mr Williams notes that, as set out in section 8.3 of the proposed scheme booklet, Altium operates short-term incentive plans, which will continue to vest and be paid out on their terms in the ordinary course; and long term incentive plans, under which rights, including Employee Share Rights (as defined) (each of which convert into Altium shares on exercise), are granted to participants and are subject to certain vesting conditions. Clause 4.5(a) of the SIA requires, as a condition precedent to the scheme, that no Altium equity incentives are in existence at the time the scheme becomes Effective (as defined), and the manner in which Altium intends to satisfy this condition is described in section 8.3 of the scheme booklet.
3. Broadly, and subject to certain conditions, the vesting of a proportion of Employee Share Rights will be accelerated; the remaining Employee Share Rights will be replaced with Renesas equity-based awards substantially comparable in value to the lapsed incentives and subject to vesting conditions; certain long-term incentive cash award entitlements of Mr Mirkazemi (Altium's Chief Executive Officer and Managing Director) and Mr Kostinsky (Altium's President and Executive Director) will be paid in cash up to a maximum fixed cash value of US$780,000 for Mr Mirkazemi and US$520,000 for Mr Kostinsky; and the remaining long term incentive cash award entitlements of Mr Mirkazemi and Mr Kostinsky will be replaced with Renesas equity-based awards substantially comparable in value to their lapsed entitlements and subject to vesting conditions. Mr Mirkazemi and Mr Kostinsky do not hold any Employee Share Rights and will therefore not obtain any benefit from the acceleration of the vesting of a proportion of the Employee Share Rights. Mr Williams also notes that, after the Implementation Date (as defined), some executives of the Altium Group (excluding Mr Mirkazemi and Mr Kostinsky) may receive Renesas equity-based awards subject to continued service conditions with a substantial maximum aggregate value.
4. Mr Williams submits and I accept that holders of Altium equity incentives and executives who may obtain Renesas equity incentives who are also Altium shareholders are not in a separate class of members by reason only that they also hold such 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].
5. Second, Mr Williams refers to the exclusivity period which is applicable in respect of the proposed scheme. He acknowledges that, under the SIA, the exclusivity period could continue until 31 December 2024, with a possible extension to 31 March 2025 under cl 3.10 of the SIA. He recognises that the exclusivity period could therefore be as long as approximately 13.5 months from the date of the SIA.
6. Mr Williams recognises that the Court will wish to be satisfied that any exclusivity period is for no more than a reasonable period which is capable of precise ascertainment; that an exclusivity clause dealing with an unsolicited alternative merger proposal is subject to a fiduciary carve out; and that the provision is clearly disclosed in the explanatory statement to the scheme 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]. Mr Williams also points to several factors to which the Court will have regard in determining whether an exclusivity period, including the complexities of the transaction and potential delay in obtaining regulatory approvals, particularly where there are lengthy review periods associated with obtaining such approvals; the period required to actually effect the scheme proposal; the operation of the break fee provisions with respect to the exclusivity period; and the level of control the bidder has over the target's actions by operation of the break fee provisions: Re Tatts Group Ltd [2017] VSC 552 at [38]; Re Origin Energy Ltd [2023] NSWSC 1246 ("Origin Energy") at [33]). Mr Williams also submits that Courts have previously approved several schemes with exclusivity periods of 12 months or more: Tatts Group at [36] (14 months); Re Sirtex Medical Ltd [2018] FCA 1315 at [37] (12 months); Re Nzuri Copper Ltd (No 4) [2020] WASC 10 at [29] to [30] (initially 9 months, extended to 13 months due to delays in obtaining Chinese regulatory approval); Re Trust Co (Re Services) Ltd as responsible entity of VitalHarvest Freehold Trust [2021] NSWSC 108 at [38] to [40] (12 months); Origin Energy at [33] (13 months).
7. Mr Williams here submits that: "a maximum Exclusivity Period of approximately 13 months (with under ten months remaining) is not unreasonable in the circumstances of this transaction due to the size of the transaction and the potential for delays in obtaining multiple regulatory approvals, including foreign regulatory approvals, which are outside of Altium's and Renesas' control."
8. I am satisfied that the relevant exclusivity period is reasonable here where, although the structure of the scheme is relatively straightforward, applications for foreign investment and regulatory approvals may be subject to heightened scrutiny in the industry in which Altium and Renesas operates, and (as I will note below), Renesas BidCo has here accepted a greater degree of risk in respect of the satisfaction of the conditions precedent and has committed to a substantially larger break fee than would ordinarily be payable by a bidder, including in circumstances that certain regulatory approvals are not obtained. For those reasons, I do not regard a longer exclusivity period in this matter as providing reason not to convene the scheme meeting.
9. Third, Mr Williams addresses the position as to the break fees payable in respect of the scheme. Under cl 10.2 of the SIA, Altium must pay Renesas a break fee of approximately $91,300,000 in specified circumstances. The circumstances in which the Break Fee is payable do not depart from common scheme practice, and a break fee is not payable merely because the resolution submitted to the scheme meeting is not approved by the required majorities. While that break fee is very large, it represents approximately 1% of the equity value of Altium, based on the scheme consideration of $68.50 per Altium share, consistent with the Takeover Panel's guidance in this respect. As I noted above, Renesas has also here committed to paying a larger break fee in specified circumstances, in circumstances that certain regulatory approvals are not obtained, and that provision is advantageous to Altium if the scheme does not proceed in those circumstances.
10. Fourth, Mr Williams addresses the position in respect of the funding of the scheme consideration and performance risk. He points out that cl 6.2 of the scheme adopts the conventional mechanism of making the transfer of Altium shares to Renesas Bidco conditional on the payment of the total scheme consideration into a trust account maintained by Altium. I accept that Altium shareholders are therefore protected against the risk that their Altium shares are transferred without receiving the scheme consideration. Mr Williams also points out that Altium shareholders have the further protection of a Deed Poll entered into by Renesas Bidco and Renesas in their favour, which is governed by New South Wales law and under which the parties submit to the non-exclusive jurisdiction of New South Wales courts. Mr Williams notes that, consistent with the Practice Note and the approach accepted in Re Blackmores Ltd [2023] FCA 624 and Re Damstra Holdings Ltd [2024] NSWSC 284 at [16], Altium has not led evidence of Japanese Law regarding due execution of the Deed Poll by Renesas, but has satisfied itself of this matter.
11. Mr Williams submits and I accept that these are well-established means of managing performance risk (Re ELMO Software Pty Ltd [2023] NSWSC 12 at [27]-[28]), although I also recognise that they do not fully address the loss of opportunity to shareholders if a scheme did not proceed because the bidder lacked funding to complete it. Here, the maximum amount of scheme consideration payable by Renesas Bidco is estimated to be A$9,090,291,833.50; there is sufficient evidence as to Renesas Bidco's capacity to fund that scheme consideration from Renesas' cash reserves equivalent to approximately A$2 billion (as at the date of Mr Homma's affidavit) and funds available to Renesas under a debt facility with a syndicate of banks in an aggregate amount of JP¥1,000 billion (equivalent to approximately A$9.13 billion as at the date of Mr Homma's affidavit); and Renesas Bidco's and Renesas' commitment under the cl 2.1 of the Deed Poll is conditional only on the scheme becoming effective. This matter gives rise to no reason not to convene the scheme meeting.
12. Fifth, Mr Williams addresses the manner of dispatch of scheme documents to Altium shareholders, which is also consistent with common practice and is consistent with ss 110D-110E of the Act. This matter also gives rise to no reason not to convene the scheme meeting.
13. Sixth, Mr Williams addresses other proposed communications with Altium shareholders. Mr Williams points out that, following dispatch of the scheme booklet, Altium may send "reminder to vote" emails and text messages to Altium shareholders in relation to the scheme, and drafts of those communications are in evidence. Altium also proposes to cause a shareholder communications firm, Morrow Sodali, to operate an inbound shareholder information line, and a draft of the "Inbound Q&A script" is also in evidence. Morrow Sodali will also conduct an outbound call campaign, undertaking phone calls to Altium's "retail" shareholders, with the purpose of raising awareness of the transaction and answering any questions that shareholders may have about the process of the scheme. The Morrow Sodali personnel conducting those calls will be required to follow an outbound calls script which is also in evidence. Mr Williams points out that the Morrow Sodali call scripts do not travel beyond the information in the proposed scheme booklet and draw attention to advantages and disadvantages of the scheme and encourage shareholders to read the scheme booklet in its entirety. Altium also proposes to conduct meetings with major proxy advisors and the materials for those meetings are in evidence. consistent with current scheme practice, Altium does not seek the Court's approval for these communications, but it has drawn them to the Court's attention. I have reviewed them and no issue arises from them that I should draw to Altium's attention as likely to cause difficulty at the second Court hearing.
14. As I noted above, Altium proposes that Morrow Sodali, acting on its behalf, and its directors or other advisers will meet with institutional shareholders in unscripted meetings to provide information about the scheme and answer any questions that institutional shareholders may have. Mr Williams notes that Morrow Sodali has already met with several institutional shareholders of Altium in this manner. Mr Williams rightly recognised that this approach may require the review of communications at these meetings at the second Court hearing, and that difficulties from unscripted communications arose, for example, in Re ResApp Health Ltd [2022] NSWSC 135 ("ResApp Health"). Mr Williams also noted that Altium would retain records of such communications.
15. In ResApp Health at [43], I did not accept a submission that the Court should not be concerned with communications with shareholders that took place before the first Court hearing, in deciding whether to approve a scheme at a second Court hearing. I there noted that the Court would be concerned about such communications if they adversely affected the integrity of the subsequent steps taken in respect of the scheme. I there accepted (at [44]) that: "to the extent that individual communications take place with shareholders, the preferable approach is for the Court to review the position in respect of such communications after the event, as a matter that is relevant to whether a scheme should be approved at the second Court hearing, rather than seeking to establish prescriptive rules for such communications or approving scripts for such communications in advance. … it may be appropriate for a company's chair, its directors or its executives to communicate with major shareholders in respect of a scheme, or with shareholders who feel strongly in respect of the scheme, in a particular case, although the practical risks of doing so in an unrestrained way are well illustrated by this matter." I also there accepted that any prescriptive rule would give rise to difficulties in distinguishing between legitimate responses to administrative inquiries in respect of a scheme and responses that had a more substantive character.
16. I there accepted (at [46]) that: "… as a matter of policy and as a matter of commerce, the Court should not seek to impose any "blanket embargo" on company officers responding to shareholder inquiries. I would add that the Court should particularly not seek to do so where there is no evidence before it as to the extent to which companies generally respond to such inquiries while a scheme is on foot. However, that observation does not displace the need for scheme companies to recognise the practical risks of such communications, which this matter again illustrates … I also accept that, as [Counsel in that case] submits, any attempt to constrain such communications might well exceed the Court's proper functions in respect of the approval of a scheme under s 411 of the Act and any initial approval of the explanatory statement and, by extension, the approval of systematic communications with shareholders which have the potential to interfere with or contradict a Court approved scheme booklet."
17. I also there accepted (at [47]) a further submission that there would a real difficulty with setting prescriptive rules for communications with shareholders where the companies which propound schemes of arrangement differ in size, and there is a real distinction between, on the one hand, a scheme between a company and a large number of retail shareholders and, on the other hand, a scheme between a company and small number of sophisticated shareholders who already have a detailed understanding of its operation. Counsel there also pointed to the significance of ex parte disclosure obligations in a scheme of arrangement, and fairly accepted that reliance on those obligations will generally require counsel and solicitors acting in a scheme of arrangement to make inquiries as to the communications between the scheme company or the acquirer and shareholders in respect of the scheme. I also there accepted that the imposition of prescriptive limitations on a company's or directors' communications with shareholders would be potentially inconsistent with other obligations arising under the Act, including the directors' duties provisions.
18. However, I also there noted (at [48]) that: "Recognising all these matters, I should nonetheless note that the history of this scheme amply demonstrates why it may be practically desirable for a scheme company and its directors and executives generally to respond to shareholder communications after the proceedings had commenced by drawing attention to the disclosure in the scheme booklet and encouraging shareholders to reach their own assessment of the scheme on its merits. Here, ResApp's and its directors' vigorous and somewhat undisciplined approach to communications with its shareholders, in response to shareholder emails and telephone calls, plainly increased the risk of unbalanced communications occurring which had the potential to undermine the integrity of the scheme process, and that in turn required that ResApp lead voluminous evidence of those communications in a manner that will have substantially increased its costs of this hearing. Indeed, the second Court hearing in this matter has involved more affidavits and took more time than any other scheme heard in this Court in the last ten or so years, including those which have involved much larger and more complex commercial transactions. It is very likely that that would not have occurred had ResApp and its executives adopted a more disciplined approach to their communications with shareholders."
19. Consistent with that approach, Altium's proposal to conduct unscripted meetings with its institutional shareholders does not give rise to any reason not to convene the scheme meeting. It will, however, require Altium's advisers to give particular attention to their ex parte disclosure obligations at the second Court hearing, and may require that evidence of the matters discussed at those meetings be led at the second Court hearing. It is to be be hoped that these meetings do not give rise to the difficulties of the kind that arose in ResApp Health.

Determination and orders

1. I am satisfied that the procedural requirements applicable at a first Court hearing have been satisfied and that the proposed scheme is of such a nature and cast in such terms that, if it achieves the statutory majorities at the scheme meeting, the Court would be likely to approve it, and that it is therefore appropriate to make the orders sought by Altium. For these reasons, I made the orders sought by Altium at the conclusion of the first Court hearing on 5 June 2024.

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: 18 June 2024