Blaze Asset Pty Ltd v Target Energy Limited

Conditions of order 3 87 The orders proposed by Blaze, however, condition the lodgement of the further notice of variation on a number of factors set out in subs (a), (b) and (c) above. It is undoubted the Court has the power to make any order under s 1322(4) on conditions. 88 It appears that the terms of the order 3(a) have been discussed and found acceptable to ASIC. Exhibit GJA2 to the affidavit of Mr Archer, sworn 24 June 2009, is a letter dated 24 June 2009 addressed to Mr Archer from ASIC (signed by Kim Demarte). ASIC's letter advises: In principle, ASIC has no objection to the making of orders which would permit Blaze's bid to be extended to 17 July 2009, and for the bid to be declared unconditional. We note that the third order of the Draft Orders is expressed to extend the time for the lodgement of a notice of Variation (Variation) under section 650D(1)(a) of the Act, to the date of the Court's orders. We think that this should refer to either section 650D(1) or alternatively section 650D(1)(b). We note that in the matter of Re Emerald Capital Limited [2008] FCA 1739 the Court made orders extending the period for the bidder to give a new notice under section 650D(1). We further note that under section 650C(2) of the Act, where a bid is subject to a defeating condition, the bidder may extend the offer after the publication of the notice under section 630(3) only if certain prescribed events occur after that date. Those prescribed events do not apply to Blaze's bid and the proposed Variation purports to extend the bid in circumstances where Blaze had not given the notice required by section 630(3). Accordingly, we think the draft orders ought to include an order extending the time for publication of the notice required under section 630(3). We note that these orders were also sought in the Emerald case. We also note the note that proposed order 3(a)(i) would require the Variation to refer to orders of the Court. We think it may be preferable to require Blaze to explain the effect of the orders granted, to minimise potential confusion about the status of Blaze's bid. 89 The terms of order 3(a)(i) of the order, if made, ensured that a notice issued under s 650D(1) has been sent by order of the Court. I am prepared to accept that as sensible in that, given that a number of persons in the market would currently understand that there is a valid variation of the bid in the market, this will help to clarify and confirm the position. 90 The terms of order 3(a)(ii), if made, specify that the notice inform recipients that the offer period is due to expire on 17 July 2009 unless otherwise extended by the plaintiff. That is also appropriate as it confirming the closing date. 91 The terms of order 3(a)(iii) of the order, if made, require that the notice inform the recipients that the offer is freed from all defeating conditions. This, as the ASIC letter notes, has the effect of making the offer unconditional. In the circumstances, that is plainly an advantage to shareholders. Or at least it would ordinarily be viewed in that way. 92 The terms of para 3(b) of the order, if made, would require Blaze to lodge the notice with ASIC and ASX by 4pm on the date of the making of the orders of this Court. That is appropriate, as the matter requires expedition to achieve commercial certainty. 93 The terms of para 3(c) of the orders, if made, would require that within three days after the date of the orders, Blaze sends the notice to Target and everyone to whom the offer has been made under the initial bidder's statement dated 16 April 2009. That also is appropriate. 94 Counsel for Target raises a further issue, namely, whether it should be made a condition of order 3, if made, that any shareholder of Target who has already accepted the offer be given the right to withdraw. 95 Section 650E(1) of the CA deals with the right to withdraw acceptance and provides: 650E Right to withdraw acceptance (1) A person who accepts an offer made under an off‑market bid may withdraw their acceptance of the offer if: (a) the bid is subject to a defeating condition; and (b) the bidder varies the offers under the bid in a way that postpones for more than 1 month the time when the bidder has to meet their obligations under the bid; and (c) the person is entitled to be given a notice of the variation under subsection 650D(1). 96 Blaze accepts that, had the two relevant "extensions" been effective and the plaintiff had decided not to free the bid of defeating conditions until later, rights of withdrawal would have arisen. Blaze contends, however, that as a consequence, however, of the plaintiff's decision to free the bid of defeating conditions at this stage those rights will not arise. This is said not to be a consequence of the order sought, but of the plaintiff's decision to free the bid of conditions by notice if order 3 is granted. This is because the plaintiff's decision (to free the bid of conditions) has the effect that the period referred to in s 650E(1)(b) is not exceeded. 97 Blaze observes that the condition suggested by the defendant, a takeover target with a commercial interest in securing the condition, would afford a right of withdrawal in circumstances where the Parliament considers it neither necessary nor appropriate. 98 Blaze submits that the references in s 650E(1)(G) to the bidder meeting "their obligations under the bid"is a reference to payment of the consideration under the bid: Explanatory Memorandum to the Corporations Bill 1988 para 2040; s 658 of the Corporations Law. 99 Blaze says the obligation of the plaintiff under the bid was to cause the offeree, who had accepted, to receive the cash component and Advance Share on the earlier of:- • one month after the offer was accepted, or the contract resulting from its acceptance becomes unconditional (whichever is the later); and • 21 days after the end of the offer period. See cl 5.1 and cl 5.2 of the bidder's statement dated 16 April 2009. 100 In terms of the bidder's statement, the offer period closed on 5th June 2009. 101 At all times up to 5 June 2009 the contract resulting from acceptance of the offer was conditional: that is, the bid was subject to the defeating conditions referred to in cl 10.8 of the bidder's statement. If as a consequence of Mr McHenry's mistake, the offer period closed on 5 June 2009, these contracts were void - because the defeating conditions had not been removed, s 650G. 102 As a consequence, in the case of the shareholder who had accepted the offer prior to 5 June 2009, no consideration was payable. No right of withdrawal under s 650E is lost if order 3 is made. 103 Had the defeating conditions been removed prior to 5 June 2009 (and they were not), likely the last contractual date for payment was 26 June 2009. (Clause 2.6 of bidder's statement). 104 Section 650E only affords a right of withdrawal when the bidder varies offers under the bid in a way that postpones for more than one month the time when the bidder has to meet its obligations under the bid, that is, pay the consideration. 105 Counsel for the plaintiff contends that s 650E is of no application if:- • the offer period is by notice given on 26 June 2009 extended to 17 July 2009; and • the offer is extended on the terms that the defeating conditions are removed; because the pre-5 June 2009 acceptor will be entitled to receive his/her consideration within one month of his/her contract becoming unconditional. This occurs one month after the notice of variation removing the defeating conditions is given. If notice is given on 26 June 2009, he/she becomes entitled to receive the consideration on 26 July 2009, which is not more than one month after he/she would become entitled to receive the consideration under the bidder's statement - also 26 July 2009. 106 Blaze puts forward as an example the situation of a shareholder who has "accepted" the "offer" in the period between 5 June 2009 and 11 June 2009 - that is the period between the expiration of the offer period under the bidder's statement and the date upon which the Plaintiff, by notice, further "extended" the offer period: • If the offer period ended on 19 June 2009, since the defeating conditions had not been removed, the contracts would have been void, and there would have been no entitlement to payment: s 650G. No right of withdrawal under s 650E could arise: • Had the defeating conditions been removed prior to 19 June 2009 (and they were not) and the offer period terminated on that day, likely the last contractual date for payment was 10 July 2009 (21 days from the end of the offer period - 19 June 2009). Necessarily this is only 14 days after the contractual date in the bidder's statement. No right of withdrawal under s 650E could arise. 107 Blaze says all the shareholders who accepted after 11 June 2009, contracted on the basis that the offer period will expire on 17 July 2009. They become entitled to their consideration 21 days thereafter, that is, on 8 August 2009, which would be 21 days after the offer period expired. If an order is made in the terms sought, they will become entitled to payment of their consideration on 26 July 2009 - because that is one month after their contracts became unconditional by service of a notice freeing the bid of conditions. No right of withdrawal under s 650E is lost as a consequence of the order sought - and as a consequence of the freeing of the bid of conditions, it may be that the shareholders receive their consideration at an earlier date than otherwise. 108 Thus, Blaze contends, conditioning an order for extension on shareholders being afforded a right of withdrawal is neither necessary nor appropriate. But, if contrary to these submissions, the Court considers a condition in the terms sought by the defendant appropriate, the plaintiff will of course submit to it. 109 Subsequent to the parties making submissions at hearing and in writing soon afterwards on the question of withdrawal rights, on 25 June 2009 Mr Demarte at ASIC provided the solicitor's for Blaze with further comment on the question of withdrawal rights and related question of voidance of offers. Mr Demarte requested that this advice be provided to the Court and counsel for the defendant. By consent of the parties, the observations made by Mr Demarte have been received by the Court. 110 Mr Demarte for ASIC, makes the following observations in relation to the terms of order 3 as proposed by Blaze and set out above: Withdrawal Rights In the ordinary course of events, as the original closing date of the offer was 5 June 2009, in accordance with s 650E(1) Blaze could have (individually or cumulatively) extended the bid to on or about 5 July 2009 without needing to either offer withdrawal rights or declare the offer unconditional prior to the extension. As discussed during our conversation of 16 June 2009, the notice of variation lodged with ASIC on 11 June 2009 would not have validly extended the bid to 17 July 2009 as it did not include the withdrawal rights noted in s650E. At that point, due to the operation of s650C(2) of the Act, had the bid been validly extended to on or about 19 June 2009 in the first instance, Blaze would have needed to drop the defeating condition pursuant to s650F(1)(a) prior to that date in order to further extend the bid (ie to 17 July 2009). If order 2 of the Draft Orders are made, this is the position that Blaze would have been in. Had Blaze dropped the condition and further extended the bid on 19 June 2009, in accordance with the terms required by s620(2)(a) of the Act, the time for payment of the consideration under the bid would have been the earlier of: (a) 19 July 2009 (one month after the takeover contract became unconditional) or for those who accepted later one month after the bid was accepted; or (b) 21 days after the end of the offer period. ASIC does not necessarily oppose remedial orders which would require Blaze to drop its defeating condition as an alternative to offering withdrawal rights. However, given the elapse of time since 19 June 2009 during which the condition has not been able to be dropped, the Court may wish to include as a condition of any remedial order that Blaze either: (1) meet its obligations under the bid by 19 July 2009 by accelerating the terms of payment (as described in ASIC Regulatory Guide 6 - Variation of takeover offers (RG 6) under the heading 'Comment' on page 11); or (2) offer withdrawal rights in accordance with s650E. Voidance of Offers We also note your comments at paragraph 7 of your outline of submissions provided to Target Energy on 24 June 2009, to the effect that if the offer closed on 5 June 2009, the contracts resulting from acceptance of the offer would be void by operation of s650G because the defeating conditions had not been removed. We make the observation that the effect of s650G (as modified by ASIC Class Order 01/1543) is that takeovers contracts are void if a defeating condition remains and that condition has not been fulfilled at the end of the offer period. As such, whether the contracts are void may depend on whether the defeating condition was fulfilled at the end of the offer period. If in the court's opinion, those contracts are not void then we presume that the time for payment of the bid consideration under those contracts would currently be 21 days after the end of the offer period. If this is the case, this time for payment would be affected by the remedial orders sought and, in ASIC's view, it would be preferable for Blaze to be required to offer withdrawal rights (or accelerated payment terms of equivalent effect) to those accepting shareholders affected, in addition to Blaze immediately declaring the bid unconditional. 111 In light of this advice, Blaze moved to amend order 3 by adding a new para (a)(iv) as follows: (iv) the time for payment of the consideration under the takeover bid for all person who had accepted the offer prior to the date of the Notice is accelerated to 19 July 2009; and 112 In respect of the ASIC advice and the condition (a)(iv) proposed by the plaintiff, counsel for Target, while maintaining his opposition to the making of an order in terms of order 3 for the reasons earlier set out, submits in the alternative that, if any order is to be made in terms of order 3, then in the exercise for the Court's discretion, it would be just and reasonable that a condition of such order be that any person who has already purported to accept the offer under the takeover offer be notified by the plaintiff that they may withdraw their acceptance of the offer - for example, by giving notice in writing to the plaintiff within one month beginning on the day after the day on which such person receives notice of their right to withdraw. 113 For my part, in the circumstances, I consider appropriate the proposition put on behalf of ASIC that given the elapse of time since 19 June 2009 during which the condition has not been able to be dropped, there should either be an accelerated payment requirement or the creation of offer withdrawal rights in accordance with s 650E. 114 ASIC plainly does not have any strong view as to the adoption of one alternative over the other. 115 In my view, in light of the fact that the market has until very recent days been acting on the basis that the extension announced to the ASX on 5 June 2009 is regular, and the revised offer announced to the ASX on 11 June 2009 is regular, it seems to me to be sufficient if order 3 requires the offer now to be unconditional, with a further safeguard that the bidder meet its obligations under the bid by 19 July 2009 by accelerating the terms of payment. 116 In those circumstances, I consider the amendment to order 3 by the insertion of (a)(iv), as proposed by Blaze, to be an appropriate protection of existing shareholder's interests in the case of those shareholders who have to date accepted the offer.

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Judgment (9 paragraphs)

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