Bell Resources Ltd v Turnbridge Pty Ltd

Federal Court of Australia|2013-09-26|Before: Farrell J

background 3 Under the proposed Schemes, Centrepoint Alliance Limited (CAF) will acquire all of the shares in the Companies which its wholly owned subsidiary does not already own. CAF, through its subsidiary, has interests in 55% of the shares of each of the Companies. The Scheme Consideration is shares to be issued by CAF. 4 On 8 August 2013, CAF made an announcement to the Australian Securities Exchange (Announcement) that it had received a draft actuarial report indicating that one of its subsidiaries, Professional Investment Services Pty Limited (PIS), needed to increase provisions for client claims. The Announcement stated that the board of CAF believed that, once the actuarial report is finalised and audited, the increase in provisions for this liability would have an impact on reported profit and net assets by between $3 million and $5 million as at 30 June 2013. Solicitors for the Companies advised the Court of the Announcement on the same day. 5 On 9 August 2013, I made orders pursuant to s 1319 postponing the Scheme Meetings to a date to be set by further order of the Court and vacating the hearing which had been set down for 16 August 2013 to approve the Schemes. As the Companies had advertised the date of the second court hearing as 16 August 2013, in terms which also referred to Scheme Meetings to be held on 12 August 2013, I accepted an undertaking from the Companies that they would undertake corrective advertising. I stood the proceedings over to 17 September 2013 for the purpose of considering supplementary material to be despatched to shareholders of the Companies. 6 On 30 August 2013, CAF published its audited financial statements for the period to 30 June 2013. Those statements revealed an increase in provisions for client claims of approximately $4.5 million.

Share Consideration and Independent Expert's Report 9 The Share Consideration proposed for the Schemes remains the same, but because of the increased PIS client claims provisions, the value of the Share Consideration has decreased as assessed by the Independent Expert (WMS Corporate Services Pty Limited) in the Revised Independent Expert's Reports dated 6 September 2013. The AAP Scheme Consideration remains 1.25 CAF Shares for each AAP Share. The Independent Expert originally valued the AAP Scheme Consideration at between 52 cents and 58 cents per AAP Share but now values it at 47 cents to 52 cents per AAP Share. The Independent Expert continues to value each AAP Share at between nil to 14 cents on a control basis. The AAP2 Scheme Consideration remains 1.16 CAF Shares for every AAP2 Share. The Independent Expert originally valued the AAP2 Scheme Consideration at between 49 cents and 54 cents per AAP2 Share and now values it at 44 cents to 49 cents per AAP2 Share. The Independent Expert originally valued each AAP2 Share at between nil and 21 cents on a control basis and now values each AAP2 Share at between nil and 23 cents. 10 The Independent Expert has maintained its opinion that the Scheme Consideration for each Scheme is fair and reasonable and in the best interests of shareholders of the Companies. This is so even though the volume weighted average price of CAF shares between 20 June and 2 September 2013 is less than the value of CAF shares as assessed by the Independent Expert in the Revised Independent Expert's Reports, noting that the volume weighted average price is nonetheless greater than the Scheme Shares. 11 Each Supplementary Scheme Booklet contains a Revised Independent Expert's Report, and the letter from the non-executive directors which draws attention to the changed assessed value of the Share Consideration as does the section of the Booklets headed "Answers to additional key questions", Section 1.2 "Change in value of Share Consideration", and Section 1.3 "Summary of changes to the original Independent Expert's Report".

Escrow Arrangements, Implementation Date, Sunset Date 12 The Share Consideration for each Scheme remains subject to Escrow Arrangements: 50% subject to escrow for 18 months and the other 50% for 24 months. 13 Annexure B to each of the Supplementary Scheme Booklets sets out the Scheme of Arrangement, which has been amended to include: detailed provisions dealing with the escrow arrangements; an amended Implementation Date (to be no later than the fifth Business Day following the Scheme Record Date); and a revised Sunset Date of 31 October 2013.

Implementation Deed and Deed Poll 14 Each Supplementary Scheme Booklet (at Section 5.1) record that the relevant Implementation Deed has been amended to incorporate the changes to the Implementation Date, the Sunset Date and the changed date on which the Court will consider whether to approve the Schemes and (at Section 5.3) that the relevant Deed Poll will be re-executed before the Scheme Meetings.

Updated financial information 15 The Supplementary Scheme Booklets contain updated financial information to 30 June 2013, reflecting the audited financial information which was released on 30 August 2013, including the $4.5 million increase in provisions for client claims, and updated financial information for the Companies.

Notice of Meeting 16 The Notices of Meeting now notify that the Scheme Meetings will be held on 1 October 2013. Each Notice also contains resolutions as follows: 1. That the scheme of arrangement proposed between [AAP or AAP2 as appropriate] and holders of its fully paid [AAP or AAP2] Shares, as set out in and more particularly described in the Scheme Booklet dated 19 July 2013 is amended by changing the definition of Implementation Date and Sunset Date, and by including a new clause 8 (and accompanying definitions) dealing with the escrow arrangements to apply to the shares to be issued to [AAP or AAP2] Shareholders as the scheme consideration, on the terms set out in Annexure B of the Supplementary Scheme Booklet dated 18 September 2013. 2. That, under section 411 of the Corporations Act, the scheme of arrangement proposed to be entered into between [AAP or AAP2 as appropriate] and holders of its fully paid [AAP or AAP 2] Shares, designated the Revised Scheme, is approved and the board of directors of [AAP or AAP2] is authorised to agree to those modifications or conditions which are thought appropriate by the Court and, subject to approval of the Revised Scheme by the Court, to implement the Revised Scheme with any of those modifications or conditions. 17 This is consistent with the approach approved by Barrett J in Re Citec Corporation Ltd (2006) 225 ALR 137.

Proxy Forms 18 New Proxy Forms will be despatched with the Supplementary Scheme Booklets. Counsel for the Companies indicated that they had thought it better to avoid an argument that it may not be appropriate to rely on Proxy Forms issued with the Scheme Booklets despatched in accordance with the orders made on 15 July 2013, in view of the diminution in the value of the Scheme Consideration, albeit that the number of CAF shares offered as part of the Scheme Consideration has not changed. This is an appropriate approach.

Period of Notice 19 Allowing for despatch of the Supplementary Scheme Booklets, the period of notice of the Scheme Meetings is 10 days. The Companies justify this time period in submissions as follows: 10. The Notices of Meeting contemplate that the postponed meetings be held on 1 October 2013. This allows time for the despatch and a 10 day time period for further consideration by shareholders. ASIC's RG 60 addresses "Supplementary Information" at paragraphs RG 60.92 and 60.93 and states "It will generally be appropriate for scheme participants, including those voting by proxy, to be given at least 10 days to consider any supplementary documentation before being required to vote on the scheme". This statement reflects a practice which has been in place for some years and was noted by Hasluck J in Re Paragon Apartments Ltd [2003] WASC 71 at paragraphs [31] and [32]. 11. It is submitted that it is appropriate for the practice to apply in the present instance because: (a) the independent expert's opinion in each scheme proposal remains that the scheme is fair and reasonable; (b) the scheme consideration with each scheme proposal remains the same number of shares; (c) to the extent that any information has changed since the Scheme Booklets, those changes are clearly identified and explained in the Supplementary Scheme Booklets; and (d) the central matter to be absorbed by scheme shareholders is that the shares to be received are worth less, even though their value remains in excess of the shares being acquired, and accordingly the information is supplementary in nature rather than altering the key terms of the transaction as disclosed to shareholders in the Scheme Booklets. 20 I accept these submissions. Further, ASIC provided letters dated 16 September 2013 in which it advised that it had examined both the Scheme Booklets and the draft Supplementary Scheme Booklets and that it did not intend to appear at the hearing on 17 September 2013.

Supporting evidence 21 The Companies supplied updating affidavit evidence in relation to: continuing consent of Messrs Cutrupi and Smith to act as Chairman of the Scheme Meetings; verification of the factual information in the Supplementary Scheme Booklets; proof of the Revised Independent Expert's Reports and notice to ASIC of the draft Supplementary Scheme Booklets.

Postponement of Scheme Meetings 22 It is convenient to comment briefly on the reasons for the orders which I made under s 1319 on 9 August 2013 referred to at [5]. The orders were made after a brief hearing by telephone link with the solicitors for the Companies in Brisbane. 23 On 8 August 2013, the same day on which CAF published the Announcement, the solicitors for the Companies advised the Court of the Announcement and sought orders in chambers vacating the date for the Court hearing which had been set down for 16 August 2013 to approve the Schemes. The solicitors advised that the Companies proposed the following: (1) The directors of the Companies would postpone the Scheme Meetings pursuant to rule 10.1(a) of their constitutions (which are in the same form in this regard); (2) CAF would release audited accounts on 30 August 2013; (3) A hearing to be held on 17 September 2013, before the directors of the Companies reconvene the Scheme Meetings. At the hearing the Court would be asked to make orders (among other things) approving despatch of supplementary explanatory material to shareholders of the Companies; (4) The Scheme Meetings would be held on 1 October 2013; shareholders would therefore have at least 10 days to consider the supplementary documentation consistent with ASIC Regulatory Guide 60.93; and (5) The applications for orders under s 411(4)(b) would be heard on 4 October 2013. 24 In the absence of a power in the constitution, the directors have no power to postpone a meeting of members once it has been convened: Smith v Paringa Mines Limited [1906] 2 Ch 193 which has been consistently applied: Colbern Nominees Pty Ltd v Prime Minerals Ltd (2009) 74 ACSR 236; McKerlie v Drillsearch Energy Ltd (2009) 74 NSWLR 673; McPherson v Mansell (1994) 16 ACSR 261 and Bell Resources Ltd v Turnbridge Pty Ltd (1988) 13 ACLR 429. 25 Rule 10.1(a) of the Companies' constitutions provides as follows: General meetings of the Company may be called and held at the times and places and in the manner determined by the Board. Except as permitted by the Law, the shareholders may not convene a meeting of the Company. By resolution of the Board any general meeting (other than a general meeting which has been requisitioned or called by shareholders in accordance with the Law) may be cancelled or postponed prior to the date on which it is to be held. 26 The solicitors for the Companies suggested that this power, together with r 3.3(2) of the Federal Court (Corporations) Rules 2000 (Cth), means that it is not necessary for the Court to use powers under s 1319 to authorise or to effect the postponement of the meetings even though they were convened by the Court under s 411(1). Rule 3.3(2) provides as follows: Unless the Court otherwise orders, a meeting of members ordered under section 411 of the Corporations Act must be convened, held and conducted in accordance with: (a) the provisions of Part 2G.2 of the Corporations Act that apply to the members of a company; and (b) the provisions of the plaintiff's constitution that apply in relation to meetings of members and are not inconsistent with Part 2G.2 of the Corporations Act. 27 Rule 3.3(2) does not in express terms deal with postponement or adjournment of meetings. Its express terms deal with a meeting being "convened", "held" and "conducted". In Re Phosphate Resources Ltd (2005) 56 ACSR 169, at [128] French J (as he then was) said: The chairman of the meeting on Christmas Island refused to entertain a motion for an adjournment. It appears from Mr Thomson's evidence, read with the chairman's evidence, that he did so at least in part on the basis that the court order precluded him from adjourning the meeting from one day to the next. I have no doubt that the chairman acted in good faith in the decision he made. There was, however, nothing in the court order to prevent the members from directing the chairman to adjourn the meeting pursuant to Art 12.13 of the PRL articles of association. … 28 The "court order" was not relevantly different from orders which I made on 15 July 2013. The order in Re Phosphate Resources was as follows (at [14]): The plaintiff (Company) convene: (a) a meeting of the members of the Company (other than CI Resources Limited ABN 70 006 788 754) on 10 September 2005 at 10.30 am at Poon Saan Community Hall, Poon Saan, Christmas Island, Indian Ocean, Western Australia (First Court Ordered Meeting); and (b) a meeting of CI Resources, as a member of the Company by an officer duly authorised in that regard, on 10 September 2005 at 10.30 am at Level 15, Woodside Plaza, 240 St George's Terrace, Perth, Western Australia (Second Court Ordered Meeting), for the purpose of considering, and if thought fit, agreeing (with or without modification) to a scheme of arrangement to be made between the Company and its members, a copy of which forms part of the scheme booklet annexed to the affidavit of Lai Ah Hong sworn 29 July 2005 (Hong Affidavit). 29 By parity of reasoning, r 3.3(2) taken with rule 10.1(a) of the Companies' constitutions empowers the directors to postpone the meetings which the Court ordered to be convened for 12 August 2013. However, in my view postponement gives rise to potentially more difficult issues than adjournment. It is quite common for the Court to order that the Chairman of the meeting has power to adjourn it. There is good reason for the Chairman of a scheme meeting to have power to adjourn the meeting once it has commenced on the date fixed for the meeting. It permits the meeting to be conducted conveniently and the power of the Chairman is exercised in a forum where the shareholders have an opportunity to express their views about adjournment. 30 As a matter of principle, the Court should play a determinative role in the course to be adopted once it becomes clear that there is a need or it is desirable to postpone a scheme meeting, absent exigent circumstances: an example of exigent circumstances provided by Counsel is destruction of the venue of a scheme meeting the night before it is due to be held. 31 The regime envisaged by s 411 is that the Court has control of the timing of the scheme meeting and information provided to shareholders and that is supported by the use of the powers conferred by s 1319. If directors postpone the Court ordered meeting without reference back to the Court, it opens up the possibility that issues (for instance, the length of the postponement, information to be provided to shareholders, and the place at which the meeting is to be held) will be addressed, by inadvertence or design, in a way which the Court may ultimately not approve, potentially causing confusion to shareholders and increasing compliance costs. 32 As demonstrated in this case, the Court can be approached for orders under s 1319 quickly and relatively informally. The manner in which the Companies' lawyers proposed to deal with the issue in this case was not inappropriate, but I nonetheless preferred the course of making the orders referred to in [5]. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.

Corporations Act 2001(Cth)ss 411(1), 411(4)(b), 1319

REASONS FOR JUDGMENT 1 On 15 July 2013, I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Corporations Act) to convene meetings of the plaintiffs Associated Advisory Practices Limited and Associated Advisory Practices (No 2) Limited (Companies) (Scheme Meetings) to be held on 12 August 2013: see Associated Advisory Practices Limited, in the matter of Associated Advisory Practices Limited [2013] FCA 761; the Scheme Meetings were postponed until further order of the Court on 9 August 2013 (see [5] below). Terms defined in those reasons bear the same meaning in these reasons and references to provisions of a statue are references to provisions of the Corporations Act unless otherwise indicated. 2 These are my reasons for making further orders on 17 September 2013 under s 1319 setting 1 October 2013 as the date on which the Scheme Meetings are to be held, approving Supplementary Scheme Booklets (including new Notices of Scheme Meeting and new Proxy Forms) for despatch to redeemable preference shareholders of the Companies, standing the proceedings over to 10:15 am on 4 October 2013 to hear the application to approve the Schemes under s 411(4)(b) and directing that the Companies publish notices of that hearing on or before 24 September 2013.

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