Australian Securities Commissions v Marlborough Gold Mines Ltd

A. Introduction 1 The Plaintiff, Suncoast Cabs Limited (Suncoast Cabs), seeks orders under ss 411 and 1319 of the Corporations Act 2001 (Cth) (the Act) for the convening of a meeting of its shareholders (Scheme Shareholders) for the purpose of considering and voting on the approval of a scheme of arrangement proposed to be made between Suncoast Cabs and the Scheme Shareholders (Scheme). 2 On 12 December 2023, I made the orders that were sought by Suncoast Cabs in relation to the holding of the meeting of Scheme Shareholders (Scheme Meeting). These are my reasons for making those orders.

B. BACKGROUND 3 Suncoast Cabs is an Australian public company limited by shares. It is an unlisted company. 4 Suncoast Cabs is engaged in the business of providing taxi management and booking services. The regulatory background to the services provided by Suncoast Cabs is that taxi operators in Queensland are required to be licenced. The Queensland Government controls the number and issue of licences. A taxi services licence (TSL) authorises operators to conduct a public taxi service in certain geographical areas known as "taxi service areas" as declared by the Department of Transport and Main Roads under the Transport Operations (Passenger Transport) Act 1994 (Qld). 5 Suncoast Cabs' services are predominantly provided in the Sunshine Coast area of Queensland which includes the two local areas governed respectively by the Sunshine Coast Council and Noosa Council (Sunshine Coast Area). 6 In effect, Suncoast Cabs operates as a form of members' co-operative by which those persons holding TSLs in the Sunshine Coast Area have formed a company to provide them and each other with services for the benefit of all of them. Suncoast Cabs supports the provision of services to 112 taxi services licensees. It undertakes a taxi booking service at its call centre 24 hours per day, 7 days per week, every day of the year. It also operates booking systems that can be accessed by mobile phone applications and the internet. It owns real property including at the location from which its call centre is operated, and these properties are Suncoast Cabs' most significant asset. 7 Suncoast Cabs has on issue 2,544 ordinary shares (SCC Shares). These ordinary shares are held in bundles of 24 ordinary shares (SCC Share Bundle). By its Constitution, only persons holding a TSL that covers the Sunshine Coast Area are eligible to be or become a member of Suncoast Cabs. The Constitution also provides that where a member sells or transfers a TSL, the member must simultaneously sell all their shares associated with that TSL. It follows that any incoming member must also hold and operate a TSL in the Sunshine Coast Area. The Constitution also provides that if a member ceases to carry on a taxi business (other than in prescribed circumstances), the Company may exercise rights to have that member's interests transferred. 8 The Constitution requires each member to pay a monthly fee to Suncoast Cabs. The quantum of the fee is determined by the Directors of Suncoast Cabs. The Directors may determine to declare a dividend from time to time. 9 On 30 January 2023, Suncoast Cabs received an unsolicited and non-binding cash offer from BWHL Pty Ltd (BWHL) to acquire its entire shareholding. Following this unsolicited approach, there was a period of due diligence, as well as negotiations between BWHL and Suncoast Cabs. 10 BWHL is an Australian proprietary limited company that was incorporated for the purpose of the Scheme. It is a wholly-owned subsidiary of the MMMGW Unit Trust, which also owns the entirety of the businesses known as the "Black & White Cabs Group" (Black & White Cabs). Black & White Cabs provides taxi management services throughout Queensland and elsewhere. 11 The Scheme involves the transfer of all the issued ordinary shares in Suncoast Cabs to BWHL. The terms of the Scheme are set out in the Scheme Implementation Deed (Implementation Deed). 12 If the Scheme is implemented, Scheme Shareholders will receive cash consideration of $1,812.50 from BWHL per SCC Share (Scheme Consideration), equivalent to $43,500 per SCC Share Bundle. The total of the Scheme Consideration is approximately $4.6M. 13 In addition to the Scheme Consideration, the Suncoast Cabs Board intends to declare and pay a dividend to SCC Shareholders (Permitted Dividend) in an amount of $1,162.34 per SCC Share, equivalent to $27,896.16 per SCC Share Bundle. The amount of the dividend is subject to business performance, formal declaration by the Suncoast Board and certain requirements in the Implementation Deed. If declared and paid, the total of the Permitted Dividend will be approximately $2.956M. 14 The application and evidence prepared by and on behalf of Suncoast Cabs accorded with the Court's Schemes of Arrangement Practice Note (GPN-SOA) (Practice Note). Consistent with the Practice Note, I made orders pursuant to r 1.3 of the Federal Court (Corporations) Rules 2000 (Cth) (Rules) that compliance with the following Rules be dispensed with: (a) r 2.4(1) of the Rules, as to the form and content of the Affidavit filed in support of Suncoast Cabs's Originating Application. (b) r 3.2(b)(ii) on the basis that these matters (to the extent relevant) were addressed in the Affidavit of Mr Vardaro; and (c) r 3.4 and Form 6. 15 At the hearing before me, Mr Arnott SC appeared for Suncoast Cabs, and I granted leave for Ms Ng of Counsel to appear for BWHL. I was greatly assisted by the written and oral submissions made by Mr Arnott SC. 16 Suncoast Cabs' application was supported by: (a) an Affidavit of Mr Andrew Travis dated 4 December 2023. Mr Travis is the solicitor acting for Suncoast Cabs in relation to the Scheme; (b) an Affidavit of Mr Clark Chappel dated 7 December 2023. Mr Chappel is the Chairperson of Suncoast Cabs; (c) an Affidavit of Mr Oliver Talbot dated 8 December 2023. Mr Talbot is the solicitor acting for BWHL in relation to the Scheme; (d) a further Affidavit of Mr Travis dated 11 December 2023; (e) a further Affidavit of Mr Talbot dated 11 December 2023; (f) a further Affidavit of Mr Chappel dated 12 December 2023. 17 The evidence that I received included the Scheme Booklet and its attachments, the Implementation Deed, and evidence about the matters required by rr 3.2(b)(ii) and 3.2(b)(iii) of the Rules. The evidence also set out the steps taken by Suncoast Cabs to verify the information contained in the Scheme Booklet, as well as the steps that Suncoast Cabs has taken to identify its shareholders and drafts of proposed communications with shareholders (such as the notice of the proposed Scheme meeting). The evidence of Mr Chappel sets out his willingness to act as the proposed Chairperson of the Scheme Meeting, and nominates an alternative Director to act if that need arises. I have received evidence of a break fee and an indication of the likely costs that will be incurred in the implementation of the Scheme. 18 I have also received evidence from BWHL verifying information relating to it and the MMMGW Trust, a Deed Poll executed by BWHL, and also evidence as to the commitments given by the MMMGW Trust from the individuals who hold controlling interests as to them providing BWHL with sufficient funds to pay the Scheme Consideration. 19 The evidence also disclosed that a draft of the Scheme Booklet was provided to the Australian Securities and Investments Commission (ASIC). ASIC sought clarification about certain matters contained in the Scheme Booklet. All of these issues have been addressed and ASIC has since indicated that it did not presently oppose the Scheme for the purpose of the first court hearing or the orders sought by Suncoast Cabs for the convening of the Scheme Meeting.

C. OVERVIEW OF THE SCHEME 20 As noted above, the Scheme involves BWHL acquiring the shareholding in Suncoast Cabs. If the Scheme is implemented, Scheme Shareholders will receive cash consideration from BWHL and, if declared, the Permitted Dividend. 21 As BWHL is a special purpose entity that has been incorporated for the purpose of the Scheme, it has no assets, liabilities or trading history. It is, however, wholly-owned by the MMMGW Unit Trust. The MMMGW Unit Trust, and the individuals who control the four substantial unitholders of that Trust, have agreed to cause BWHL to receive sufficient funds to enable it to fund the Scheme Consideration. 22 Importantly, if implemented, the Scheme does not involve any of the Scheme Shareholders, or other persons, surrendering or transferring their respective TSLs. Put in more simple terms, none of Suncoast Cabs' members will, by reason of the Scheme, cease to provide taxi services pursuant to their TSLs. 23 The Scheme is conditional upon (among other things): (a) Scheme Shareholders approving the Scheme by the requisite majorities required by the Act; (b) there being no "Material Adverse Change" including that Suncoast Cabs maintain net cash of at least $200,000 or net assets of $3.6M; (c) Suncoast Cabs having executed "driver affiliation agreements" with all taxi drivers; (d) Suncoast Cabs having executed agreements with either licence holders and/or operators ensuring that it will maintain at least 90% of the taxi fleet for a term of at least 18 months after the Implementation Date; and (e) other conditions precedent in the Implementation Deed having been satisfied or waived. 24 Sections 411(3) and 412(1) of the Act require the disclosure of information explaining the "effect" of the scheme, as well as information "material" to a member's decision as to whether or not to agree to it. The information must be presented in a form that is intelligible to reasonable members of the class to whom it is directed and should contain information that is realistically useful having regard to the complexity of the proposal: Re HIH Casualty and General Insurance Ltd (2006) 200 FLR 243 at [81]-[83] per Barrett J. 25 The Scheme Booklet meets these requirements. In particular: (a) the advantages and disadvantages of the Scheme are summarised in sections 3.1 and 3.2 of the Scheme Booklet, including a high-level summary of the Independent Expert's Report; (b) there is a set of "Frequently Asked Questions" in section 4, directing attention to the sections of the Scheme Booklet in which particular matters are elaborated in greater detail; (c) there is an overview of the Scheme in section 6 and a detailed overview of how to vote at the Scheme Meeting in section 5; and (d) there are also sections of the Scheme Booklet dealing with Suncoast Cabs (section 8), BWHL (section 9), implementation of the Scheme (section 7), investment risks and implications if the Scheme is not implemented (section 10), tax implications of the Scheme (section 11) and additional information (section 12). 26 The Scheme Booklet also discloses the information specifically required to be disclosed by s 412(1)(a) of the Act and reg 5.1.01 of the Corporations Regulations 2001 (Cth): see in particular sections 2, 3 and 4 of the Scheme Booklet. 27 Annexure C to the Scheme Booklet contains an Independent Expert's report authored by Mr Warwick Face of Pitcher Partners. The Independent Expert assessed the value of Suncoast Cabs at between $2,866.35 and $3,419.42 per SCC Share. As the Scheme Consideration for each SCC Share is $1,812.50 and the Permitted Dividend is expected to be $1,162.34 per SCC Share, the combined amount is one that falls within the Independent Expert's assessed fair market value range. On that basis, the Independent Expert concludes that the Scheme is fair and reasonable to, and in the best interests of, all Scheme Shareholders in the absence of a superior proposal. 28 However, the Independent Expert expresses the further opinion that in the event there is a reduction in the dividend by more than $108.49 per SCC Share (9.3% of the forecast permitted dividend or 3.6% of the total fair value of consideration), then, the Scheme would be unfair. D. THE ROLE OF THE COURT 29 The principles applicable to the role of the Court in approving the holding of scheme meetings are well settled: Capilano Honey Limited, in the matter of Capilano Honey Limited [2018] FCA 1568; (2018) 131 ACSR 9 at [32]-[34] per Farrell J; Dealt Holdings Ltd, in the matter of Dealt Holdings Ltd [2022] FCA 1104 at [22]-[26] per Halley J. The authorities establish that the Court must be satisfied of a number of preconditions to the exercise of its discretion. The preconditions include that: (a) the proposed scheme must be an "arrangement"; (b) the proposed scheme must be in respect of a Part 5.1 body and as between that body and its creditors or members; (c) an application for an order pursuant to s 411(1) must be made to the Court in a summary way by the Part 5.1 body, or any creditor or member; (d) 14 days' notice of the Court hearing at which the order is sought, or such lesser period as ASIC or the Court permits, must be given to ASIC; (e) the Court must be satisfied that ASIC has had a reasonable opportunity: (i) to examine the terms of the proposed scheme to which the application relates and a draft explanatory statement relating to the proposed scheme; and (ii) to make submissions to the Court in relation to the proposed scheme and the draft explanatory statement. (f) the proposed scheme is bona fide and properly proposed; (g) the requirements in ss 411(3) and 412 of the Act, and reg 5.1.01 and Sch 8 to the Corporations Regulations 2001 (Cth) (Regulations), regarding the information that is to be sent to creditors or members about the scheme have been met, such that the explanatory statement relating to the proposed scheme will provide sufficient disclosure to creditors or members; (h) all other procedural requirements have been met, including those in the Rules; and (i) the proposed scheme is "fit for consideration" at the meeting, in the sense that there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of members' or creditors' votes is achieved. 30 In relation to the last of the above matters, the authorities state that it is not necessary for the Court to descend into the commercial merits of the proposed scheme and that the proposed arrangement is one that is fit for consideration by a meeting of members if it is likely to gain the Court's approval if passed by the necessary majority: see F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 (and approved in Australian Securities Commissions v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504; Essential Metals Limited, in the matter of Essential Metals Ltd [2023] FCA 240 at [24] per Banks-Smith J.

E.1. The preconditions for the exercise of power 31 The Court's power under s 411(1) of the Act may be exercised if certain preconditions have been satisfied that are considered necessary for the exercise of that power: see MOQ Limited, in the matter of MOQ Limited [2022] FCA 1160 per Halley J citing Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 at [12] per McKerracher J. 32 On the evidence before me, I was satisfied that: (a) Suncoast Cabs is a Pt 5.1 body; (b) the Scheme Shareholders are members of Suncoast Cabs; (c) a company search of Suncoast Cabs from the records of ASIC was conducted on 1 December 2023, being no earlier than 7 days before the Originating Process was filed on 4 December 2023, in compliance with r 2.4(2) of the Rules; (d) the Scheme Meeting will be convened between members of the same class and the Scheme gives rise to a proposed arrangement between Suncoast Cabs and the Scheme Shareholders; (e) the Scheme can properly be described as an arrangement; (f) the Scheme is bona fide and properly proposed; (g) the 14-day notice period to ASIC under s 411(2)(a) of the Act of the first court hearing has been satisfied; (h) the Scheme Booklet provides adequate disclosure and contains the prescribed information. This information and other matters pertaining to Suncoast Cabs and its shareholders have been properly verified. The Scheme Booklet also discloses the information specifically required to be disclosed by s 412(1)(a) of the Act and reg 5.1.01 of the Corporations Regulations 2001 (Cth); (i) ASIC has had a reasonable opportunity to examine the terms of the Scheme and the Scheme Booklet, and to make submissions to the Court; (j) I received evidence as to the Chairperson and alternative Chairperson of the Scheme Meeting in accordance with r 3.2 of the Rules; (k) the proposed draft order for the convening of the Scheme Meeting identified the Scheme as required by r 3.3(1) of the Rules; and (l) as further addressed below, the Scheme is of such a nature and cast in such terms that, if it receives the necessary majority of votes, the Court would be likely to approve it. 33 Accordingly, I was satisfied that the necessary conditions existed such that I had the power to make the orders sought under ss 411(1) and 1319 of the Act.

E.2. Discretionary reasons favour the making of the orders 34 I was satisfied that I should exercise my discretion to make the orders sought. In brief, these are my reasons for doing so. Scheme is recommended by Suncoast's Directors 35 The Scheme has been unanimously recommended by Suncoast Cabs' directors. The directors' interests have been fairly and adequately disclosed in the Scheme Booklet. The directors do not stand to obtain any benefit over and above the Scheme Shareholders. The recommendation of the directors in the absence of them obtaining any separate or additional benefit is a matter to be given favourable weight. Independent Expert's opinion 36 The Independent Expert's opinion is that the Scheme is fair and reasonable and in the best interests of the Scheme Shareholders on the basis that the Scheme Shareholders receive payment of the Scheme Consideration and the Permitted Dividend. In expressing this opinion, the Independent Expert has evaluated the advantages and disadvantages of the Scheme. 37 However, as noted above, in the event that there is a reduction in the Permitted Dividend by more than $108.49 per SCC Share, then, the Independent Expert's opinion is that the Scheme would be unfair. 38 I am satisfied that the Scheme Shareholders will have the opportunity to read the Independent Expert's opinion and benefit from his appraisal of the fair value of the SCC Shares and the fairness of the Scheme overall, subject to the qualifications expressed in that opinion. 39 The fact that the Independent Expert has expressed a favourable opinion of the Scheme (subject to the limitations that I have noted), satisfies me that the Scheme is of such a nature that, if it achieves the requisite statutory majority at the Scheme Meeting, it is a Scheme that the Court will likely approve. 40 As to the Independent Expert's opinion relating to a reduction in the Permitted Dividend, I am satisfied that Scheme Shareholders will know well in advance of the Scheme Meeting whether it is to be paid in full, or not. That is because the Permitted Dividend will be declared on 29 December 2023, which is well before the Scheme Meeting that is scheduled to occur on 5 February 2024. Further, if there is a reduction in the Permitted Dividend, it will require further notification to the Scheme Shareholders and ASIC, revisions to the Scheme Booklet and, in due course, notification to the Court. In those circumstances, I am satisfied that Scheme Shareholders will be in a position to evaluate the Independent Expert's opinion having regard to the quantum of the Permitted Dividend that is to be declared. The Scheme Consideration and Permitted Dividend 41 As I have noted, if the Scheme is approved and implemented as presently contemplated, the Scheme Shareholders will receive not only the Scheme Consideration but also the Permitted Dividend (if it is declared, as is presently contemplated). 42 I have also noted that the primary asset of Suncoast Cabs is its real property, which has an estimated value of approximately $3.6M. Suncoast Cabs also has cash reserves that are available to it, with net cash and cash equivalents being approximately $3.38M. 43 If the Permitted Dividend is declared, it will be funded from the cash reserves which will leave little by way balance in those reserves. BWHL is aware of this fact and that is a matter for its commercial judgment in seeking to acquire Suncoast Cabs on the basis of the payment of the Permitted Dividend. 44 However, if the Scheme is not implemented, the Scheme Booklet discloses that the Directors presently intend to declare a dividend of approximately $581.67 per SCC Share. Naturally enough, if the Scheme is not approved or implemented, the Directors do not intend to entirely exhaust or deplete the available cash reserves. 45 The payment of contingent dividends in the context of members' schemes of arrangement is not unusual and is consistent with the constraints imposed by s 254T of the Act: Re Vita Group Ltd [2023] FCA 400 at [8]-[10] per Jackman J; see also Re Oz Minerals Ltd [2023] FCA 197 at [30] per Beach J; Re Think Childcare Ltd [2021] FCA 1042 at [26] per O'Callaghan J. 46 I received evidence that over the last 10 financial years, Suncoast Cabs has declared dividends on only two occasions, being $187.50 per SCC Share paid in December 2019, and $210 per SCC Share paid in March 2022. Thus, the payment of dividends has not been a regular occurrence, and the payment of the Permitted Dividend as part of the Scheme is self-evidently a means by which to return to the Scheme Shareholders the value of retained earnings over a period of time. 47 Further, as noted above, the Permitted Dividend will be declared before the Scheme Meeting and has been adequately disclosed in the Scheme Booklet. Break Fee and Reverse Break Fee 48 The Implementation Deed provides for a break fee of $200,000 to be paid by Suncoast Cabs in particular circumstances and for BWHL to pay an equivalent sum as a reverse break fee in certain other circumstances. 49 The Takeovers Panel Guidance Note 7 on lock-up devices provides that in the absence of other factors, a break fee not exceeding 1% of the equity value of the target is generally not unacceptable. In the present case, if the Scheme Consideration is taken together with the expected Permitted Dividend, the total equity value is approximately $7.567M. The break fee represents approximately 2.64% of that notional total equity value. It is therefore greater than the amount in the Takeovers Panel Guidance Note. 50 However, the fact that a break fee and reverse break fee exceeds the 1% guideline in the Takeovers Panel Guidance Note is not a reason of itself to refuse an order for the convening of a scheme meeting: see, generally, greater proportionate amounts considered in Re Cytopia Ltd [2009] VSC 560 at [12]-[18]; cited with approval in Re Toll Holdings Limited [2015] VSC 123 at [30]; Re Tatts Group Ltd [2017] VSC 552 at [34]; Re Konekt Limited (No 2) [2019] FCA 1997 at [6] and [25]; and Re Gindalbie Metals Limited [2019] FCA 953; 137 ACSR 338 at [27]-[28]. 51 Suncoast Cabs and BWHL have agreed on the break fee and reverse break fee for reasons (amongst others) that they are to compensate for costs incurred by both parties in pursuing the transaction and are agreed to be a genuine pre-estimate of those costs. Those anticipated costs have been disclosed in the Scheme Booklet and include the cost of legal fees. It may be that in cases where the equity value of the target business or the transaction is relatively modest, a break fee may appear to be of greater proportionate significance expressed as a percentage of the value of that transaction. However, that may, in certain circumstances, be an overly simplistic analysis which does not pay due regard to certain fixed and sunk costs (such as legal fees) incurred in the hope of scheme implementation that may be wasted if the scheme does not proceed. 52 Different considerations may arise where the break fee is contingent on the approval of the Scheme by Scheme Shareholders or it is of such an amount that it could influence voting at the meeting or deter companies from mounting a competing offer: Re MYOB Group Limited [2019] FCA 484 at [70]; Re Toll Holdings Limited [2015] VSC 123 at [27]-[29]; Re SFE Corporation Ltd (2006) 59 ACSR 82; Re APN News & Media Limited (2007) 62 ACSR 400 at [37]-[55]. See also Re Skilled Group Ltd (No 1) [2015] VSC 789 per Robson J at [42]. However, this is not the present case. The break fee and reverse break fee are not payable in circumstances where the Scheme Shareholders do not approve the Scheme by the requisite majorities at the Scheme Meeting. Nor have they been included as part of the Scheme to dissuade a competing offer (as there is no evidence as to the prospect of any such offer). It is not payable simply because Scheme Shareholders reject the Scheme. It is otherwise consistent with the Takeovers Panel Guidelines in relation to reasonable triggers for the payment of the fee (such as a change of directors' recommendation, a competing transaction that successfully competes or a material breach within the target's control). Relationship between Suncoast Shareholders and BWHL 53 Particular unitholders and beneficiaries of the MMMGW Unit Trust are related entities of Scheme Shareholders. Those related Scheme Shareholders, which are under common control with BWHL, have an aggregate shareholding in Suncoast Cabs of 9.43% as set out in the Scheme Booklet. These shareholders intend to abstain from voting at the Scheme Meeting. 54 Connections between the "Target" and the "Bidder" are not a reason to decline to order the convening of scheme meetings: Re Aspen Group Ltd [2015] NSWSC 1718 at [16]. In the present case, I am satisfied that the relationship between BWHL and Scheme Shareholders, under common control, is appropriately disclosed in the Scheme Booklet and is being satisfactorily managed by the relevant Scheme Shareholders abstaining from casting their votes. The Scheme is bona fide 55 As I have noted, Suncoast Cabs operates as a form of members' co-operative. The Scheme Shareholders are all holders of TSLs. Nothing in the Scheme, if implemented, will alter their economic interests in the TSLs that they hold. The Scheme provides the Scheme Shareholders an opportunity to obtain value for their respective shareholdings, as well as being paid a dividend from retained earnings and cash reserves. The Scheme is occurring against the background of the prospect of regulatory changes to the holding of TSLs and the impact of "ride share" service providers on the taxi industry more generally. The Scheme Shareholders are all operators in that industry and are in a position to exercise their commercial judgment and self interest as to whether to approve the Scheme. 56 I am satisfied that the Scheme is bona fide and, that, if it receives the necessary majority of votes, it is a Scheme that I would likely approve. Scheme Booklet and other materials and communications are adequate 57 I am satisfied that Scheme Shareholders have been provided with information in the Scheme Booklet and the other proposed communications that adequately and fairly set out the terms of the Scheme, as well as its advantages and disadvantages. 58 I am satisfied that Scheme Shareholders will be in a position to make an informed choice about the merits of the Scheme and whether to approve it.

F. CONCLUSION 59 For the foregoing reasons, I was satisfied that the orders that were sought should be made, and, accordingly, I exercised my discretion to make those orders. I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Shariff.