Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd, in the matter of Chevron

BANKS-SMITH J: 1 On 1 November 2023 I heard an application under s 411 of the Corporations Act 2001 (Cth) to approve the convening of a scheme meeting and despatch of the relevant scheme booklet, and for related directions. I made orders on that date for the following reasons. Introduction 2 On 8 September 2023 Advanced Share Registry Limited (ASW) announced that it had executed a scheme implementation deed (SID) with Automic Enterprise Pty Ltd, under which Automic will acquire the entire issued capital of ASW by way of a Scheme of arrangement, subject to certain conditions precedent. 3 It is well recognised that such a share acquisition transaction can be implemented by way of a scheme of arrangement approved under s 411 of the Corporations Act. 4 Section 411 envisages three steps: an application to Court for orders convening a meeting; a vote by members; and a further application to Court for approval of the arrangement. 5 This application, the first step in the process, was lodged on 22 September 2023. It is proposed that a meeting of members for the purpose of voting on the Scheme take place on 5 December 2023, with the second court hearing scheduled for 7 December 2023.

Parties 6 ASW is a public company listed on the ASX. The shares in ASW are admitted to quotation on the ASX. ASW is a share registry services company providing services to listed and unlisted companies. 7 Automic is also a share registry services provider. It is not listed on a financial market. 8 Under the proposed Scheme and the terms of the SID, a wholly owned subsidiary of Automic, Automic Pty Ltd (Automic Subsidiary), will acquire all the ASW Shares on issue.

Aim of the Scheme 9 The consideration proposed under the Scheme is $0.165 for every ASW Share held as at the record date for the Scheme, less the cash amount of any fully franked dividend paid by ASW before implementation of the Scheme, up to a maximum amount of $0.0025 per ASW share (Permitted Dividend). 10 The maximum aggregate amount payable by Automic Subsidiary as scheme consideration, having regard to ASW's current issued share capital and assuming ASW does not pay the Permitted Dividend, will be approximately $31.91 million. 11 If the conditions precedent to the proposed Scheme are satisfied or waived, the Scheme will be implemented as follows: (a) on the business day before the Implementation Date (as defined in the Scheme, and being 20 December 2023), Automic Subsidiary will provide, or procure the provision of, the aggregate amount of the scheme consideration in cleared funds in a trust account maintained by ASW; (b) on the Implementation Date, ASW will pay the scheme consideration to the Scheme Shareholders (as defined in the Scheme); and (c) subject to the provision of the Scheme Consideration by Automic Subsidiary, all the shares in ASW will be transferred to Automic Subsidiary. 12 Following implementation of the Scheme, ASW will become a wholly owned subsidiary of Automic and will be delisted from the ASX.

The explanatory statement 13 In summary, s 412(1) of the Corporations Act requires every notice to members convening a scheme meeting to be accompanied by an explanatory statement, explaining the effect of the proposed arrangement, and making prescribed disclosure of matters such as directors' relevant interests. It must also provide any information material to the making of a decision by a member, which has not previously been disclosed. 14 In this case, the Scheme Booklet incorporates the explanatory statement, and relevantly addresses the reasons why the ASW directors unanimously recommend that members vote in favour of the Scheme; key information about the Scheme meeting and voting information; risk factors, taxation considerations and other information the directors consider material. Relevantly, it also attaches a copy of the report of the independent experts (RSM Bird Cameron), the SID and a deed poll. By the deed poll each of Automic and Automic Subsidiary undertake in favour of each shareholder to deposit the aggregate amount of the scheme consideration into the trust account prior to the Implementation Date. This is discussed further below.

Evidence relied upon 15 AWS relied on the following affidavits: (a) affidavit of Marc Wilshaw, solicitor and partner at Thomson Geer Lawyers, solicitors for AWS, which attaches relevant company searches and ASX announcements; (b) second affidavit of Marc Wilshaw, deposing to his nomination and willingness to act as chairperson for the proposed scheme meeting, and Mr Jonathan Foo's nomination and willingness to act as alternate chairperson; (c) affidavit of Simon Cato, chairman of AWS, which relevantly attaches the draft scheme booklet and provides information about the break fee agreed by the parties in the SID, the verification process undertaken for the draft scheme booklet, exclusivity provisions under the SID, the provision of the draft scheme booklet to the Australian Security and Investment Commission (ASIC) for review, proposed communications with shareholders and the advertisement of the second Court hearing; and (d) third affidavit of Marc Wilshaw, which attaches an amended and final version of the Scheme Booklet and ASIC's 'indication of intent' letter. 16 Automic was joined as an interested party and was represented at the hearing. It filed an affidavit of Andrew Wilson, chief executive officer of the Automic Group, who explained the verification process undertaken by Automic as to matters disclosed in the Scheme Booklet which relate to it. The affidavit annexed a copy of the executed deed poll. ASW also relied on Mr Wilson's affidavit. 17 For reasons set out more fully below, I am satisfied by reference to this evidence that the parties have taken into account the disclosure requirements and guidelines included in Part 5.1 and Part 6 of the Corporations Act, the prescribed requirements of the Corporations Regulations 2001 (Cth), ASIC's Regulatory Guide 60 and this Court's Schemes of Arrangement Practice Note (GPN-SOA).

Legal framework for the first court hearing 18 Section 411(1) of the Corporations Act relevantly provides that, where an arrangement is proposed between a Part 5.1 body and its members, the Court may, on the application of the body in a summary way, order a meeting of the members to be convened in such manner and to be held in such place as the Court directs. 19 Section 412(1)(a) of the Corporations Act relevantly provides that where a meeting is convened under s 411, the Part 5.1 body must, with every notice convening the meeting, send a statement explaining the effect of the arrangement. The statement must set out such information as is prescribed and any other information that is material to a member's decision to agree or not agree to the arrangement. It is usual, as in this case, for a scheme booklet to include the explanatory statement information. 20 Where the Court makes an order convening a meeting, the Court may also approve the explanatory statement required by s 412(1)(a) to accompany the notice of such a meeting. 21 This application concerns only the convening of the first meeting and the approval of the Scheme Booklet.

Section 411 threshold matters 22 There are many authorities in which the principles have been summarised. For convenience, I adopt below the summary included in Chevron (TAPL) Pty Ltd v Chevron Australia Pty Ltd, in the matter of Chevron (TAPL) Pty Ltd [2022] FCA 220 at [17]-[20]. 23 Section 411 does not set out the criteria that must be satisfied before a meeting is ordered. However, the authorities establish that the Court should order the convening of a scheme meeting and approve the despatch of an explanatory statement if satisfied of the following matters: (a) the plaintiff is a Part 5.1 body (defined in the Corporations Act); (d) the scheme is an arrangement in respect of which the Court may order a meeting of the members or creditors; (e) the explanatory statement (that is, the scheme booklet) provides adequate disclosure and contains the prescribed information; (f) the proposed scheme is bona fide and properly proposed; (g) 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' votes is achieved; and (h) any other procedural requirements have been met. 24 As to other statements of the principles, see in particular Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited [2015] FCA 341 at [9] (McKerracher J); EcoBiotics Limited, in the matter of EcoBiotics Limited [2017] FCA 643 at [20] (Gleeson J); Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 at [46]-[78] (Vaughan J); and In the matter of Ovato Print Pty Ltd [2020] NSWSC 1683 at [19] (Black J). 25 The principles as to the nature of the review at the first court hearing are also summarised elsewhere: for example, Programmed Maintenance Services Limited, in the matter of Programmed Maintenance Services Limited [2017] FCA 1265 at [11]-[14] (McKerracher J); and Signature Gold Ltd, in the matter of Signature Gold Ltd [2017] FCA 1481 at [22]-[23] (Markovic J). 26 In summary, the standard of review is whether the proposed scheme is not inappropriate and is one that sensible business people might consider is of benefit to its members. It is not necessary for the Court to descend into the commercial merits of the proposed scheme. If the proposed arrangement is one that seems fit for consideration by a meeting of members and is a commercial proposition likely to gain the Court's approval if passed by the necessary majority, then leave should be given to convene the meeting.

Consideration - threshold matters 27 The following are relevant in this proceeding.

Part 5.1 body 28 Section 411 of the Corporations Act confers jurisdiction on the Court in respect of a Part 5.1 body. The term 'Part 5.1 body' is defined in s 9 to mean, relevantly, a company. ASW is a company duly incorporated in Australia.

Arrangement 29 The proposal before the Court is an arrangement. It concerns a change in the rights of members in their capacity as members of ASW, and is of a nature well recognised as an arrangement: Re Mod Resources Ltd; Ex Parte Mod Resources Ltd [2019] WASC 326 at [37] (Vaughan J).

Explanatory statement - the Scheme Booklet 30 I have considered the Scheme Booklet in the final form in which it was provided to ASIC. I have summarised above at [14] the matters it covers. 31 I have reviewed the affidavit evidence to ensure that the matters which must be disclosed have been adequately disclosed (including the prescribed matters referred to in s 412(1)(a) of the Corporations Act and Schedule 8 of the Corporations Regulations) and I consider that is the case. I had the assistance of a compliance schedule provided with the written submissions.

Independent expert 32 ASW engaged RSM as independent expert to provide an opinion on the proposed Scheme. RSM concluded that the terms of the Scheme are fair and reasonable and therefore that the Scheme is in the best interests of ASW shareholders, in the absence of a superior proposal. 33 RSM has valued ASW shares on a control basis in the range of $0.133 to $0.141 per ASW share. 34 At Part 2 of RSM's report, the advantages and disadvantages are set out in terms that I consider clear and accessible to shareholders.

Voting position of directors 35 The directors of ASW, who collectively hold approximately 58.83% of all ASW shares on issue, unanimously recommend that shareholders vote in favour of the Scheme in the absence of a superior proposal. Each has indicated they will vote in favour of the Scheme. 36 It is appropriately disclosed in the Scheme Booklet and the Chair's letter to members that accompanies the Scheme Booklet that each board member will receive a benefit as a shareholder: Essential Metals Limited, in the matter of Essential Metals Limited [2023] FCA 240 at [72]-[74]. The amount of consideration that will be received by each director (and/or their associates) if the Scheme is implemented is specifically disclosed.

A single class 37 The Scheme involves only one class of voters. All ASW shareholders have the same right to receive the scheme consideration under the Scheme. The voting intention statements given by the directors of ASW are not class creating: Tawana Resources NL, in the matter of Tawana Resources NL (No 3) [2018] FCA 1952 at [23]-[32].

ASIC's position 38 The jurisdiction of the Court to make an order to convene meetings under s 411(1) of the Corporations Act is conditional upon satisfaction of the two matters set out in s 411(2). The Court must be satisfied, first, that ASIC has been given (relevantly) 14 days' notice of the hearing; and second, that ASIC has had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement and to make submissions to the Court. 39 I am satisfied as to both of these matters on the evidence. 40 Further, by letter dated 31 October 2023, ASIC informed AWS that the timing requirement had been satisfied, and that ASIC is of the view that it has had a reasonable opportunity to examine the terms of the Scheme and the draft explanatory statement, and to make submissions to the Court. 41 ASIC did not seek to intervene or be heard at the hearing. ASIC communicated with the solicitors for ASW on a draft of the Scheme Booklet, and as a result certain minor amendments were made. I was able to note those amendments by way of a marked up version of the draft Scheme Booklet. Nothing of significance arises from those amendments.

Chair 42 The requisite consents to act as chairperson and alternate chairperson have been provided.

Proper purpose and bona fides 43 I am satisfied for the purpose of the first hearing that the Scheme is bona fide and properly proposed. 44 ASW's constitution does not prevent the Scheme. Its directors recommend the Scheme. There is nothing in the material before the Court that suggests the Scheme has not been properly proposed.

Consideration - particular matters relevant to the Scheme

Permitted Dividend 45 The Scheme Booklet discloses that the ASW directors will make a decision as to whether the Permitted Dividend is to be paid and communicate that decision by way of ASX announcement before the date of the second court hearing. Factors relevant to the decision-making process are disclosed, such as whether ASW will have sufficient profits and retained earnings to fund the payment at the time.

Performance risk 46 The terms of the Scheme address performance risk relating to share transfers in the standard way: see generally Asaleo Care Limited, in the matter of Asaleo Care Limited [2021] FCA 406 at [45]-[49]. 47 The steps are summarised at [11] above. 48 Under the terms of the Scheme, Automic will be beneficially entitled to the ASW shares and hold proxy rights in respect of them pending its registration in the register of members. These provisions apply from the date the Court's orders approving the Scheme are lodged with ASIC, rather than from payment of the scheme consideration. However, clause 8 of the SID provides that the boards of ASW and its subsidiaries will only be reconstituted with Automic's nominees once the scheme consideration has been paid to ASW shareholders (compare Saracen Mineral Holdings Ltd v Northern Star Resources Ltd [2020] WASC 483 at [57] (Hill J)). I accept ASW's submission that this reduces the risk of any interference by the incoming board with the implementation of the Scheme. 49 By the executed deed poll, each of Automic and Automic Subsidiary covenants in favour of the Scheme shareholders that it will comply with the obligations placed on Automic and Automic Subsidiary under the Scheme. ASW and its directors, officers and secretaries may act as each shareholder's agent and attorney to enforce the deed poll.

Funding 50 The scheme consideration is to be sent to shareholders on the Implementation Date, said to be 20 December 2023. 51 The Automic Subsidiary has entered into a syndicated facility agreement under which Macquarie Bank Limited has agreed to provide debt funding to the Automic Subsidiary. 52 The Automic Subsidiary is permitted under the terms of the facility to use the funds provided under the facility to partially fund the scheme consideration, and fund fees and expenses incurred in connection with the facility or the Scheme and certain other amounts. Funds provided under the facility will be used in addition to Automic's existing cash reserves to fund the scheme consideration. There is no apparent reason why the conditions to the facility will not be satisfied to enable the facility to be drawn for the purpose of funding the scheme consideration. 53 Mr Wilson in his affidavit verifies these matters on behalf of Atomic Subsidiary and states that the amount of funds to be drawn under the facility and the amount of ASW's existing cash reserves exceeds the maximum aggregate scheme consideration.

Lock up devices - break fee and exclusivity provisions 54 The SID provides for ASW to pay a break fee to Automic in the event the Scheme is not implemented, in recognition of costs incurred by Automic. The circumstances in which the break fee is payable do not depart from accepted practice: Asaleo Care at [52]. Importantly, no break fee is payable merely because ASW shareholders do not approve the Scheme. The fee is disclosed in the Scheme Booklet, and no novel issue arises from it. 55 The break fee is $319,123, representing approximately 1% of the equity value of ASW ($31.91 million, based on the scheme consideration of $0.165 per share), in line with the Takeovers Panel's Guidance Note 7: Deal Protection at [48]. 56 Similarly, no novel issue arises with respect to exclusivity provisions included in the SID. In general, and as discussed in APN News & Media Limited, in the matter of APN News & Media Limited [2007] FCA 770 at [29] (Lindgren J) and Re Arthur Yates & Co Ltd [2001] NSWSC 40 at [9] (Santow J), exclusivity provisions should: (a) exist for no more than a reasonable period which is properly defined; (b) be subject to the directors' fiduciary and other duties; and (c) be given adequate prominence when disclosed in the scheme booklet. 57 In this case there are standard exclusivity provisions in respect of ASW in the form of 'termination of existing discussions', 'no shop', 'no talk', 'no due diligence', 'notification of approaches' and 'matching right' (in clause 1). Clause 11.6 also provides a 'fiduciary carve-out' from the 'no talk' and part of the 'no due diligence' provisions. These are all familiar provisions in schemes of this nature: see generally Schemes, Takeovers and Himalayan Peaks, Tony Damian and Andrew Rich, Fourth Edition at [7.3]. 58 Further, the relevant length of the exclusivity period is approximately five months from the date of the SID (unless extended by agreement). That period is well within the parameters of periods recognised as reasonable: see examples with greater periods listed in Asaleo Care at [57]. 59 There is an appropriate fiduciary carve-out (as noted above); and the exclusivity provisions are appropriately disclosed in the Scheme Booklet. Mr Cato in his affidavit also deposed to the fact that the exclusivity provisions were publicly announced at the time of agreeing the SID, so that any rival bidder could understand how they might engage regarding a potential competing proposal. 60 I am satisfied that the exclusivity provisions are acceptable having regard to the established considerations.

Dispensation 61 ASW seeks dispensation under r 1.3 of the Federal Court (Corporations) Rules 2000 (Cth) from compliance with (a) r 2.4(1) of those Rules, to the extent it requires the affidavit filed with the originating process to state all the facts in support of the process; (b) r 2.15 of those Rules, with respect to the application of Division 75 of the Insolvency Practice Schedule (Corporations) (being Schedule 2 to the Corporations Act) to the meeting; and (c) r 3.4 of those Rules, as to the need to publish notice of the second hearing in a newspaper in the prescribed form, given the proposal to publish an ASX announcement (consistent with the Court's recent Schemes of Arrangement Practice Note GPN-SOA). 62 There is no reason to withhold dispensation in the circumstances of this Scheme.

Conclusion 63 For the above reasons, I was satisfied that each of the matters relevant to an order convening a scheme meeting under s 411 was addressed by the evidence and that it was appropriate to make the orders sought by ASW, including those relating to the convening of the meeting, approving the Scheme Booklet for distribution and the conduct of the scheme meeting. 64 The terms of the proposed scheme are in a conventional form. There is no reason why the Scheme, if considered and adopted by the members, is not of such a nature as would be likely to be approved at the second court hearing. 65 Orders were made accordingly. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.