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[2002] FCA 239
plaintiff. The Court made orders approving each of the four schemes of arrangement and exempting the plaintiff from compliance with s 411(11) of the Corporations Act 2001 (Cth).
Justice Emmett approved four linked schemes that will merge two long-intertwined listed companies into a single listed entity. CPM and SPP had operated a joint shale-oil business for nearly 30 years under a cross-shareholding structure originally created for tax reasons that no longer existed. The schemes exchange each class of CPM security for equivalent SPP securities at a 2.664:1 ratio, delist CPM, remove the cross-holdings, improve share liquidity and make future takeover bids more feasible, while allowing up to 20 per cent of shareholders to defer their participation for up to ten years. After confirming that each class meeting had produced the required majorities and that a minor change to meeting start times caused no prejudice, the judge relied on a detailed KPMG expert report that weighed the commercial advantages against costs, complexity and the absence of a control premium. Finding the schemes fair, reasonable and in the best interests of each class, with no opposition, the Court gave its final approval and excused CPM from having to attach the orders to every copy of its constitution.
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Central Pacific Minerals NL (CPM) and Southern Pacific Petroleum NL (SPP) had, since 1968, maintained a cross-shareholding structure that reflected a now-obsolete differential tax regime distinguishing petroleum from mineral exploration companies. By the early 2000s the two entities operated as a single managerial and operational unit with identical boards, shared facilities and a 50:50 interest in ten substantial shale-oil deposits in central Queensland. CPM held approximately 30.7 per cent of SPP and SPP held 34.5 per cent of CPM. The cross-holding created unnecessary complexity, inhibited potential takeover bids for either company, and produced parallel listed securities with relatively illiquid markets.
To rationalise the structure, CPM proposed four interdependent schemes of arrangement under Part 5.1 of the Corporations Act 2001 (Cth). The schemes provided for ordinary shareholders, contributory shareholders, equity participation shareholders and convertible-note holders in CPM to exchange their securities for equivalent-class securities in SPP at a ratio of 2.664 SPP securities for each CPM security. Convertible notes would remain on issue but would become convertible into SPP shares on the same ratio. The transaction would result in SPP becoming the listed holding company of CPM, the removal of the cross-shareholdings, the delisting of CPM, and an option for up to 20 per cent of CPM shareholders to defer transfer of their shares for up to ten years. A two-year 20 per cent shareholding cap in SPP was also proposed to mitigate immediate takeover risk following implementation.
On 11 December 2001 Hely J made orders under s 411(1) convening meetings of the four classes. Those meetings occurred on 24 January 2002. Although the formal orders had stipulated fixed start times for each successive meeting, the notices sent to security holders provided that later meetings would commence at the nominated time “or as soon as the previous meeting concluded”. Emmett J found this minor departure caused no prejudice. Each class passed its resolution by the statutory majorities required by s 411(4)(a). At the third-stage hearing on 27 February 2002, CPM tendered the KPMG expert report of Mr Steve Scudamore that had been included in the explanatory memorandum. That report concluded that each scheme was in the best interests of the relevant class after balancing improved liquidity, removal of takeover impediments, alignment of ownership with underlying asset values, and the countervailing factors of implementation costs, additional amortisation charges, residual minority interests during the deferral period, and the lack of a control premium. No security holder appeared to oppose the application. Emmett J was satisfied both that the procedural requirements had been met and that the schemes satisfied the fairness and reasonableness test. Orders approving all four schemes and exempting CPM from s 411(11) were made on 27 February 2002.
Emmett J began by restating the three-stage statutory framework (para 6). Because Hely J had already convened the meetings, the second-stage judge assumed the first-stage discretion had been properly exercised and focused on whether the meetings had been conducted in accordance with the convening orders and whether the resolutions achieved the majorities prescribed by s 411(4)(a). The evidence satisfied him on both counts; the slight variation in meeting commencement times was not material because no security holder was disadvantaged (paras 17-18).
Turning to the discretionary stage, the judgment carefully articulates the supervisory (not paternalistic) nature of the Court’s role. The primary task is to confirm procedural regularity; the further duty is to satisfy itself that the arrangement is fair and equitable, free of oppression, consistent with public policy and commercial morality, and one that an intelligent and honest member of the class, acting alone in respect of his or her own interests, might approve (paras 12-14). The Court is not a rubber stamp, yet it will be reluctant to override informed majorities of security holders who are better placed to judge commercial advantage (para 13). Technical and mechanical safeguards, however, remain the Court’s responsibility (para 10).
Application of these principles was straightforward. The KPMG report provided a detailed, factor-by-factor analysis demonstrating that the exchange ratio reflected net-asset parity after eliminating cross-holdings, that post-merger liquidity would improve, that the removal of cross-holdings would make genuine takeover bids more feasible, and that, on balance, each class would be better off if the schemes proceeded (paras 32-33). The 20 per cent deferral mechanism and two-year shareholding cap were accepted as legitimate risk-management measures. The absence of any opposition reinforced the conclusion that the schemes were not oppressive and did not constitute a fraud on any minority. Finally, the Court noted the steps taken to satisfy the US Securities Act s 3(a)(10) exemption requirements but correctly declined to rule on whether Australian procedures would ultimately satisfy American law (paras 28-31). These considerations collectively justified the grant of approval and the ancillary s 411(12) exemption.
Prior to this judgment the statutory language in ss 411(4), 411(11) and 411(12) had been settled for many years. The three-stage process, the 75 per cent by value threshold, and the Court’s dual function at the first and third stages were already orthodox. What Emmett J supplied was a concise, self-contained synthesis of the discretionary principles that later courts have found convenient to cite. The judgment crystallised that the Court’s concern at the approval stage is supervisory rather than merits-based, that it must affirmatively address absence of oppression and the “intelligent and honest person” test (para 14), and that independent expert evidence going to best-interest outcomes carries substantial weight.
After the decision, the principles set out in paragraphs 7-14 became a standard template for second-stage applications. The explicit recognition that a minor, non-prejudicial departure from a convening order does not preclude approval (para 18) has provided practical guidance in cases where meeting logistics prove inflexible. The judgment also illustrated that a cross-shareholding simplification can satisfy commercial-morality requirements even where some residual complexity (such as a ten-year deferral mechanism) remains. The s 411(12) exemption was granted without controversy once the primary approvals were justified, confirming that such relief is routine where no continuing utility exists for appending orders to the constitution. In short, the law itself was not changed, but its practical application was clarified and illustrated with a transparent, paragraph-by-paragraph roadmap that subsequent benches have adopted.
Paragraph 6 states: “the statutory framework … indicates that there are three stages involved in the promulgation and giving effect to a scheme of arrangement … (1) the application to the Court to convene a meeting; (2) the holding of the meeting to approve the scheme; and (3) the application to the Court for its approval of the scheme.”
Plain English: A scheme is not binding until it clears three distinct hurdles—first ask the Court for permission to put the deal to a vote, hold the vote, then ask the Court a second time to sign off. The judge is involved twice, but with different questions each time.
Paragraph 10 provides: “While security holders of a company may be considered to be better judges than the Court could be of what is to their commercial advantage, that does not extend to the technical or mechanical aspects of an arrangement.”
Plain English: Shareholders know their own financial interests better than any judge, but they are not experts in legal drafting or corporate mechanics; that is why the Court still checks the fine print.
Paragraph 13 reads: “The jurisdiction of the Court in relation to an arrangement is supervisory, in the sense that the Court is concerned to be satisfied that there has been an absence of oppression and that the arrangement is one that is capable of being accepted. For example, the Court will withhold its approval where a majority is shown to be acting in bad faith or where a majority’s acceptance is in the nature of a fraud on the minority.”
Plain English: The judge is a referee, not a player. The Court’s job is to stop bullying or dishonest behaviour, not to substitute its own commercial opinion for that of the people whose money is at stake.
Paragraph 14 contains the often-quoted test: “The Court must be satisfied that the proposal is at least so fair and reasonable that an intelligent and honest person, who is a member of the class of security holders bound by the arrangement acting alone in respect of his or her interests, as such security holder, might approve it.”
Plain English: Would a sensible, decent investor in this class, looking only after himself or herself, be prepared to say yes? If the answer is yes, the Court will usually approve.
These passages, read together, form the doctrinal core that practitioners still recite when advising on scheme approval applications.
This judgment is engaged whenever a listed company seeks final Court approval of a Part 5.1 scheme after security-holder meetings have been held pursuant to a first-stage order. It is especially pertinent where multiple classes of securities exist (ordinary shares, preference or contributory shares, options, notes), where the commercial rationale is structural simplification or elimination of cross-holdings, and where an independent expert has opined that the exchange ratio is fair and that each class is likely to be better off if the scheme proceeds. The presence of a deferred-election mechanism, a temporary shareholding cap, or the need for a US securities-law exemption under s 3(a)(10) of the 1933 Act will also bring the reasoning directly into play.
The precedent is triggered when there is no opposition at the second hearing, when the only potential irregularity is a non-prejudicial logistical variation from the convening orders, and when the expert evidence systematically addresses liquidity, takeover likelihood, amortisation effects, taxation and implementation costs. Conversely, the judgment warns that approval is not automatic: if new evidence of bad faith, oppression or an unreasonable burden on a minority emerges between the first and third stages, the Court must refuse. Fact patterns involving pure cash-out schemes, schemes that alter creditor rights, or schemes opposed by a significant minority fall outside the direct facts but still draw on the same supervisory principles.
Subsequent benches have treated Emmett J’s synthesis as authoritative restatement of orthodox principle. The three-stage taxonomy in paragraph 6 is routinely cited as the starting point for scheme judgments. The “intelligent and honest person” formulation from paragraph 14 has been adopted almost verbatim in countless approval reasons as the definitive statement of the discretionary threshold. Courts have repeatedly echoed the observation that the jurisdiction is supervisory rather than merits-based (para 13) and that security holders remain the primary judges of commercial advantage provided technical fairness is assured (para 10).
The judgment’s pragmatic approach to minor departures from convening orders has been followed where notice variations or meeting sequencing caused no substantive prejudice. Its acceptance of expert evidence that balances positive and negative factors (liquidity gains versus amortisation charges and deferral complexity) has become standard methodology in scheme opinions. Later decisions have also cited the discussion of the US s 3(a)(10) exemption to explain why an Australian court does not purport to rule on foreign-law compliance. Overall, the decision has been followed rather than distinguished; it is treated as a convenient encapsulation of principles that were already settled but which had not previously been collected in one concise ex tempore judgment.
Several issues flagged in the reasons remain live. First, the judgment expressly declines to decide whether the notice and hearing procedures under s 411 satisfy the “fairness hearing” prerequisite of s 3(a)(10) of the US Securities Act (paras 30-31). That question continues to be addressed by US counsel opinions rather than Australian judicial pronouncement. Second, the ten-year deferral mechanism, which leaves a minority of CPM shareholders on the register after delisting, raises questions about ongoing minority-protection obligations and potential oppression claims that were not tested because the scheme was unopposed. Third, the interaction between the two-year 20 per cent shareholding cap and future takeover bids was accepted on the evidence before Emmett J, but the judgment does not explore the outer limits of such caps or the point at which they might themselves become unreasonable.
The weight to be given to an expert’s qualitative assessment of “increased vulnerability to an inappropriately priced takeover offer” after the two-year cap expires also remains fact-specific. Finally, while the judgment confirms that additional amortisation charges and taxation consequences do not preclude approval when balanced against other benefits, it does not prescribe a methodology for quantifying those effects in more marginal cases. These areas continue to require careful evidentiary preparation in subsequent schemes that share similar structural features.
REASONS FOR JUDGMENT 1 The plaintiff, Central Pacific Minerals NL ("CPM"), seeks orders pursuant to Part 5.1 of the Corporations Act 2001 (Cth) for approval of four schemes of arrangement proposed between CPM, on the one hand, and the holders of four different classes of securities issued by CPM on the other. On 11 December 2001, Hely J made orders pursuant to s 411(1) of the Corporations Act that there be meetings convened of the relevant classes of security holder. Those meetings have now been convened and CPM seeks orders pursuant to s 411(4)(b) of the Corporations Act that schemes be approved by the Court. 2 Section 411(1) relevantly provides that, where an arrangement is proposed between a company and any class of its members, the Court may order a meeting of that class of members to be convened. Where the Court makes such an order, the Court may approve the explanatory memorandum required by paragraph 412(1)(a) to accompany notice of the meeting. 3 Section 411(2) provides that the Court must not make an order pursuant to s 411(1) unless notice of the hearing of the application has been given to the Australian Securities and Investment Commission ("the Commission") and the Court is satisfied that the Commission has had a reasonable opportunity to examine the terms of the proposed arrangement and to make submissions to the Court in relation to the proposed arrangement and the proposed statement explaining the effect of the arrangement and setting out such information as is prescribed, and any other information that is material to the making of a decision by a member of the company. 4 The pivotal provision of Part 5.1 is s 411(4), which provides that an arrangement is binding on a class of members of a company and on the company itself if, and only if, at a meeting convened in accordance with an order of the Court, a resolution in favour of the arrangement is passed: · by a majority in number of the members in that class present and voting, either in person or by proxy, and · by 75 per cent of the votes cast on the resolution;
and the arrangement is approved by order of the Court. 5 Under s 411(10), an order of the Court made for the purposes of s 411(4)(b) does not have any effect until an office copy of the order is lodged with the Commission. Upon being so lodged, the order takes effect on and from the date of lodgement, or such earlier date as the Court determines and specifies in the order. Section 411(11) provides that a copy of every order of the Court made for the purposes of s 411(4)(b) must be annexed to every copy of the constitution of the company issued after the order has been made. However, under s 411(12), the Court may exempt a company from compliance with s 411(11). CPM seeks, in addition to orders approving the schemes of arrangement, an order under s 411(12). 6 The statutory framework that I have briefly described indicates that there are three stages involved in the promulgation and giving effect to a scheme of arrangement, such that the scheme will be binding on the parties to it. Those stages are as follows: 1. the application to the Court to convene a meeting; 2. the holding of the meeting to approve the scheme; and 3. the application to the Court for its approval of the scheme.
Thus, the Court plays a part in two stages of the process. 7 In the present case the first stage was completed before Hely J. While it is common for the same judge to be involved at both stages, it is not necessary that that be so. The Court will assume that, where a meeting has been convened by the Court pursuant to s 411(1), the appropriate principles for the exercise of the discretion conferred at that stage Court wre adopted and applied. 8 Those principles require that the Court will not convene a meeting unless the arrangement proposed is of such a nature and is cast in such terms that, if the arrangement receives approval by the statutory majority at the relevant meeting, the Court will be likely to approve the arrangement on the hearing of any application that is unopposed. At the stage of convening a meeting, the Court will give consideration to compliance with such preliminary matters as are relevant to the holding of the meeting. Of paramount importance at that stage is the need to ensure that there will be sufficient disclosure, to those who will be affected by the arrangement, of its details and effect. The Court will also need to be satisfied, at that stage, that there has been reasonable opportunity for the Commission to examine the terms of the arrangement. 9 In exercising its discretion whether to convene a meeting, the Court will have regard to such matters as the acceptability of the documentation of the proposed arrangement, the commercial viability and morality of the arrangement, the likely acceptability of the arrangement, the bona fides of the proposals, whether the proposals could be achieved by another method and any objections or submissions by the Commission. It is always the practice of the Court, at the first stage, to go through the proposed arrangement, to raise matters as to the drafting of the documentation, to ascertain whether the arrangement complies with the substantive requirements of the law and to ensure that the arrangement, if given effect, will not involve any unfair or oppressive result. 10 In considering whether to convene a meeting, the Court will take into account questions of public policy as well as commercial morality. The Court will have regard to the interests of parties who will be bound by the arrangement and who might be careless of their own best interests. While security holders of a company may be considered to be better judges than the Court could be of what is to their commercial advantage, that does not extend to the technical or mechanical aspects of an arrangement. Security holders are likely to be influenced largely by their understanding of the broad economic consequences of an arrangement. However, they are entitled to rely on the Court's approval as a sufficient safeguard against defects at the technical or mechanical level. 11 Accordingly, for the purposes of protecting the interests of security holders who have not agreed to an arrangement and yet will be bound by it, the Court will ordinarily seek to ensure that the terms of the arrangement would be enforceable by all persons bound by it against those who are seeking to implement it or obtain benefits from it. The Court will also seek to ensure that the arrangement does not, without sufficient reason, include provisions that may create inroads upon or modify the benefits that a security holder bound by it might legitimately expect to obtain under it. The mere fact that the Court has convened a meeting does not, however, necessarily mean that the Court will approve the arrangement, even if the arrangement is unopposed at the third stage. 12 In considering whether to approve an arrangement at the third stage, the Court must first be satisfied that the second stage has been fully completed. It must be satisfied that the resolutions have been passed in accordance with the statutory requirements. Secondly, however, the Court must then consider the exercise of its discretion whether to approve the arrangement. While the primary task of the Court is to see that the procedure whereby the arrangement has been approved by security holders is formally correct, it has the further duty of satisfying itself that the arrangement is fair and equitable between different classes of security holders, and as between security holders and those who will benefit from it. 13 The jurisdiction of the Court in relation to an arrangement is supervisory, in the sense that the Court is concerned to be satisfied that there has been an absence of oppression and that the arrangement is one that is capable of being accepted. For example, the Court will withhold its approval where a majority is shown to be acting in bad faith or where a majority's acceptance is in the nature of a fraud on the minority. The Court will, of course, generally take the view that the shareholders are the best judges of whether an arrangement is to their commercial advantage and will be reluctant to make decisions contrary to the views of security holders expressed at meetings. The function of the Court does not extend to usurping the views of the relevant security holders. 14 Nevertheless, the Court is not a mere rubber stamp and it will look at the arrangement to ensure that it is a reasonable one. If the Court concludes that there is an objection to the arrangement, such that a reasonable person might not approve it, then the Court may refuse to approve the arrangement. The Court must be satisfied that the proposal is at least so fair and reasonable that an intelligent and honest person, who is a member of the class of security holders bound by the arrangement acting alone in respect of his or her interests, as such security holder, might approve it. 15 It is against those principles that I must consider the two questions that are now presented to the Court. The first is, whether the procedural requirements of the order made by Hely J have been satisfied. The second is, assuming that the pre-conditions of s 411(11)(4)(a) are satisfied, whether the four schemes of arrangements should be approved. 16 Each of the four schemes is between CPM on the one hand and a class of security holder on the other, being: · ordinary shareholders; · contributory shareholders; · equity participation shareholders; and · convertible note holders. The schemes are part of a proposal to combine two listed entities, being CPM on the one hand and Southern Pacific Petroleum NL ("SPP"), on the other. The result will be that there is but one publicly listed company, being SPP, which will be the holding company of CPM. The schemes involve the acquisition of securities issued by CPM in consideration of the issue to the holders of those securities of securities in SPP of an equivalent class. The schemes will result in SPP owning at least 80 per cent of CPM's voting shares. 17 I have considered the affidavit evidence filed on behalf of CPM in support of the application for approval of the schemes. I am satisfied from those affidavits that, subject to one matter, meetings were convened pursuant to and in accordance with the orders made by Hely J on 11 December 2001. However, senior counsel for CPM has drawn my attention to one matter in relation to the holding of the meetings that may be regarded as a departure from strict compliance with the orders made by Hely J. 18 Hely J ordered that meetings of the four different classes of security holders be held on 24 January 2002 at 10.15am, 11am, 11.20am and 11.40am respectively. However, in the documentation sent to security holders, including the formal notices of meeting, security holders were told that, while the meeting in relation to the scheme for ordinary shareholders would commence at 10.15am, the other three meetings would commence at the time specified, or as soon as the previous meeting concluded or was adjourned. I am satisfied that there is no prejudice likely to any security holder by reason of that departure, insofar as it was a departure from orders made by Hely J. 19 I am satisfied that the prerequisites contained in s 411(4)(a) have been satisfied and that each scheme of arrangement has been approved by the requisite majority of security holders that will be bound by that scheme. However, before deciding whether to approve the schemes, it is necessary to consider the schemes and the reasons for promulgating them. 20 SPP and CPM are both presently engaged in the development of the shale oil industry in Australia. SPP and CPM together have interests in ten shale oil deposits located in central Queensland, which contain a very substantial resource of shale oil. SPP and CPM jointly commenced exploration for shale oil in 1973. The research and exploration techniques adopted by SPP and CPM led to the initial discovery of deposits in Queensland in 1974 and a further deposit in 1977. Following further discoveries and more recent acquisitions, SPP and CPM currently hold joint title to 10 Australian shale oil deposits of significant size. 21 In 1968, when CPM and SPP were first formed, a tax regime existed in Australia that treated companies differently for tax purposes according to whether they were petroleum or mineral exploration companies. Since the founders of the two companies intended to undertake both petroleum and mineral exploration, they formed two separate companies to take best advantage of the tax regime. Accordingly, SPP was formed to pursue petroleum exploration and development and CPM was formed to pursue mineral exploration and development. A cross-shareholding was established with the objective of diversifying and sharing the risks and benefits of exploration failures and successes between the shareholders of each company. 22 Both companies made initial public offerings and were listed on the Australian Stock Exchange ("ASX") in 1968. However, in 1972, the differential tax regime was removed. Nevertheless, when the companies decided to become actively involved in the development of oil in Australia in 1973, SPP and CPM agreed that, as the industry embraced both mining and oil technology, any interests that either of them acquired would be taken up on a 50:50 basis between them. 23 Although CPM and SPP are separate companies, they are effectively operated and managed as a single entity. CPM and SPP have the same board of directors, management and facilities and they own all their significant assets on a 50:50 basis. At present, CPM owns approximately 30.7per cent of SPPs issued capital, and SPP owns approximately 34.5 per cent of CPMs issued capital. The two companies have been run in a manner that ensures that revenue, expenditure, capital, assets and liabilities are allocated as closely as possible on a 50:50 basis. 24 The managerial focus facilitated by identical boards has ensured that the two separate companies do everything within their means to ensure that they operate practically as one entity. The implementation of the schemes of arrangement is intended to simplify the structure of the two companies by removing the cross-shareholding. If the schemes are approved, each of the existing securities in CPM, other than convertible notes, will be exchanged for 2.664 securities in SPP of an equivalent class. 25 However, each holder of convertible notes will continue to hold convertible notes. Pursuant to the scheme relating to convertible notes, the terms of the convertible notes will be amended so that the convertible notes will be convertible into SPP shares rather than CPM shares, again at the ratio of 2.664 SPP shares for each CPM share that would have been issued upon conversion. 26 The schemes entail the delisting of CPM, the removal of the shareholding held by CPM in SPP and an option for security holders to defer participation in the relevant scheme for up to 10 years. That option is available for up to a maximum of 20 per cent of shares. An amendment of SPP's constitution is proposed so that, for 2 years from the implementation date as defined in the schemes, the maximum shareholding in SPP of any person will be limited to 20 per cent. 27 The schemes are expressed to be subject to certain conditions precedent. The schemes relating to contributing shares, equity participation shares and convertible notes are conditional upon approval of the scheme relating to ordinary shares. Otherwise the conditions precedent are equivalent. I am satisfied that, apart from the condition as to approval by the Court, the conditions precedent have been satisfied. 28 The securities in SPP that will be issued as consideration are subject to the Securities Act 1933 (U.S.). However, s 3(a)(10) of the Securities Act 1933, contains certain exemptions from compliance with that Act. The relevant requirement for the exemption for any security that is issued and exchanged for bona fide securities, is that the terms and conditions of such issuance and exchange have been approved by a court after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange have had the right to appear. 29 One of the requirements for the operation of s 3(a)(10) is that the proposed issuer of securities in respect of which the exemption is to be claimed must advise the court whose order will be relied upon, that the issuer will rely on s 3(a)(10) on the basis of the court's approval. That requirement has been satisfied. 30 The evidence before me indicates that for the exemption to be effective, the court in question must have sufficient information before it to determine the value of both the securities to be surrendered and the securities to be issued in the proposed transaction. The exemption will be available only if the court in question both holds a hearing to determine whether the proposed terms and conditions are fair to all those who will receive securities in the exchange and to approve the fairness of the terms and conditions of the proposed exchange. Such a hearing must be open to everyone to whom securities would be issued in the proposed exchange and notice of the hearing in appropriate terms must be provided in a timely manner. 31 It is not for this Court to express any view as to whether the procedures or processes of the Court are sufficient to satisfy the requirements of the exemption in s 3(a)(10). However, it is clear that, on the hearing of an application for an order approving an arrangement under s 411)(4)(b) of the Corporations Act, any security holder is entitled to be heard. The application for approval takes place in open court after formal notification and advertisement in daily newspapers circulating in Australia. Applications for approval may be opposed and indeed, there are instances of approval being refused in the light of opposition and submissions advanced at a hearing at the third stage to which I have referred. 32 Hely J, when convening the meetings, had before him evidence from Mr Steve Scudemore, a director of KPMG Corporate Finance Aust Pty Limited and a partner of the accounting firm KPMG. That evidence consisted of a sworn report of 16 November 2001. The report was prepared in order to provide an opinion as to whether the schemes are in the best interests of the persons who will be bound by them. It was prepared for inclusion in the information memorandum required under Part 5.1 of the Corporations Act. The basis of the evaluation as to whether each of the schemes was in the best interests of the scheme participants was an assessment as to whether those participants are likely to be better off if the relevant scheme proceeds then if the particular scheme does not. CPM also relies on that evidence in its application to me for approval of the schemes. 33 The report referred to a number of factors, as follows: 1. The exchange ratio of 2.664 is fair, since it represents the ratio of the interests of shareholdings per share in the underlying net assets, after eliminating the impact of cross-shareholdings. 2. The 47.6 per cent share of SPP that will be held by CPM security holders is consistent with the proportion of value that will be contributed by CPM to the newly merged SPP group. 3. The market for SPP ordinary shares after the merger can reasonably be expected to be more liquid than the current market for CPM ordinary shares. 4. The elimination of cross-shareholding removes an inhibition against making a takeover bid for SPP or CPM thus making a potential takeover bid more likely. Given the investment and progress of the companies since November 2001, the directors believe that SPP and CPM are currently vulnerable to an inappropriately priced offer. For that reason, the schemes are subject to the condition precedent that the maximum shareholding of any person in SPP will be limited to 20 per cent for 2 years. 5. The CPM shares of holders of ordinary shares who elect to defer the transfer of their ordinary shares will cease to be listed on ASX. 6. After two years, there will be increased vulnerability to an inappropriately priced takeover offer. 7. There will be an additional amortisation charge on the merger of the two companies.
34 After considering each of those factors, Mr Scudemore expresses the opinion that each of the schemes is in the best interests of the holders of the particular securities. Having regard to the evidence of Mr Scudemore, and to the absence of any opposition to the application made today, I am satisfied that the Court should make orders as sought in the application. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.
Solicitor for the Plaintiff: Allens Arthur Robinson
The Court made orders approving each of the four schemes of arrangement and exempting the plaintiff from compliance with s 411(11) of the Corporations Act 2001 (Cth).