Cleary & Anor v Australian Co-opertive Foods Limited [1999] NSWSC 1276 | Case summary

1 It remains for me to give brief reasons in relation to the orders I have earlier made approving the scheme of arrangement whereby GIO Australia Holdings Limited ("GIO") will become a wholly owned subsidiary of AMP Insurance Investment Holdings Pty Limited ("AMP"). The consideration will be provided by a company in the AMP group conveniently referred to as AMPII, being AMP Group Finance Services Limited. It is not necessary that I recite the key features of the scheme for present purposes, as that is sufficiently set forth in the scheme documents. 2 The scheme meetings have taken place and the result is an overwhelming majority in favour of the scheme. By number of shares, the percentage in favour is 97.27% of those present and voting and by number of shareholders 95.75% of those present and voting. Furthermore, there has been a substantial participation of shareholders in that the shares voted represent 51.28% of the minority shares on issue. The other necessary formalities to enable the scheme to be approved have been the subject of extensive affidavit material and based on that material can be taken to have been satisfied. 3 The holder of some 2.5% of the total issued capital, GPG Australia Nominees Limited ("GPG"), has attended Court to-day having previously foreshadowed opposition to the Scheme. No vote was cast in respect of these shares at the relevant scheme meetings either for or against. Whilst through Counsel GPG stated that it was not satisfied in relation to many of its concerns, and as to unspecified conduct of AMP and GIO in the course of implementing the scheme proposal which it considered not justified and possibly illegal, GPG expressly confirmed two things. First was that it did not wish to deprive other minority shareholders of realising the shares under the only practicable and sensible alternative. Second, that none of their concerns were such as should be put to this Court as going to the fairness of the Scheme for the purpose of its approval to-day. 4 The Scheme has been the subject of a letter from ASIC dated 17 December 1999 in the usual terms indicating no objection to the Scheme. I am satisfied that such letter is in accordance with s411(17)(b) of the Corporations Law such that I do not need to consider whether s411(17)(a) would in the circumstances preclude this Court approving the Scheme. That of course does not remove the Court's discretion insofar as it arises in considering whether or not to approve the Scheme pursuant to s411(6) of the Corporations Law. 5 Prior to to-day's hearing affidavit material was provided to the Court both by GIO and AMP from the relevant responsible officers as to the circumstances in which the announced original terms of the Scheme were varied downwards so as to become the Scheme presently before me. GPG disavowed any submission that that material or any other matter bearing on the downward variation should, in the circumstances, have led either to the earlier revocation of my orders convening the scheme meetings or now to denial of approval to the scheme at this hearing. That affidavit material is part of the Court file and was also made available at the request of GPG to GPG. No submission was put to me that the terms upon which it was made available were in any way objectionable. Certain of that material was only made available to Counsel and Solicitors for GPG under obligations of confidentiality. 6 In order to allay any concern that GPG may have been placed in any preferred position, I have asked and this has been agreed, that such material be made available for inspection to any other shareholder of GIO via the solicitors for GIO and AMP, upon a similar basis mutatis mutandis as applied to GPG. 7 One particular feature of this Scheme has been that the financial situation of GIO particularly as regards its reinsurance business, has not remained static. It has varied but only adversely from that set out in the Scheme documents, though it is fair to say that the Scheme documents had foreshadowed that possibility quite explicitly. 8 Under the arrangements set out in the Merger Implementation Agreement with AMP and reflected in conditions of the Scheme itself, AMP has been engaged in a continuing due diligence exercise in relation to GIO having regard to its capacity to terminate its involvement if certain specified trigger events occur. (In the events that happened, the relevant termination was not triggered.) 9 That circumstances of a foreshadowed prospect of an adverse change of circumstances in relation to GIO poses this question. What steps if any should the Court take in the approval process to ensure that shareholders are properly informed of matters material to the members' decision, in terms of Schedule 8 of the Regulations to the Corporations Law; compare Cleary & Anor v Australian Co-opertive Foods Limited (1999) 52 ACSR 701 per Austin J. 10 Clearly participants in a scheme of arrangement should not be placed in a worse position as regards disclosure than offerees under a conventional takeover offer within the broad notion of materiality. 11 In order to meet these concerns, whilst recognising the intrinsic confidentiality of some of this information (though I was assured not such as to require to be disclosed under the ASX continuing disclosure obligations) both GIO and AMP through the relevant responsible officers have agreed to provide by way of further affidavit the following confirmation. That confirmation covers two matters:

(b) that there is no other information material to a shareholder making a decision in relation to the Scheme that has not been so disclosed, within the knowledge of the responsible officer concerned (being, in the case of the GIO, the Chairman Mr Mazoudier). 12 Given that assurance and the earlier disclosure, no further action is deemed necessary. These later adverse events in relation to GIO could only induce acceptance, not deter it. This is not a case where adjourning the meeting with the opportunity to revoke or alter any proxy by reason of subsequent events would have been justified. This is more especially as that would have left shareholders at continued risk from the consequences of any further GIO financial deterioration and from AMP termination in consequence, were termination events thereby triggered. 13 It remains to deal briefly with some matters raised by one of the GIO shareholders, Mr Cachia. The most fundamental matter he raised is whether such a scheme could validly expropriate the shareholder's shares in light of the decision of the High Court in Gambotto v WCP Limited (1995) 182 CLR 432. The short answer to that is to be found in the majority judgment at 446 where it is clear that the High Court did not intend to preclude such compulsory acquisition as is provided for under schemes of arrangement or other such statutory regimes where fairness is appraised, though takeovers masquerading as selective reductions of capital without the safeguards of an associated scheme remain for future consideration. That of course assumes that this scheme of arrangement satisfies the relevant statutory requirements. 14 Mr Cachia raised various concerns about the disclosure in the scheme documents which are recorded in the transcript. I am satisfied on the material before me that there is no basis for treating the expert as other than independent or to conclude that the disclosure was other than adequate. Necessarily there are limits to the degree to which the Court is able to probe into the accuracy or completeness of scheme documents. In so doing it is prompted by the matters revealed by the documentation itself or otherwise drawn to its attention, in what is usually not an adversarial process unless the Scheme is contested. This scheme was not. The Court must do what it practically can, aided by the fact that ASIC scrutinises schemes and can be expected to draw matters to the Court's attention that have not been satisfactorily dealt with. None were drawn to the Court's attention and those matters the Court raised were dealt with before the Scheme documents were despatched. Ultimately both the Court and even ASIC rely upon the scheme proponents doing that which they are obliged to do by way of accurate, complete and not misleading disclosure of all material information. That is ultimately sanctioned by civil penalties and civil liability. 15 I A Renard and J G Santamaria in "Takeovers and Reconstructions in Australia" at 15,061 (footnotes abbreviated), accurately and conveniently state the nature of the Court's task in exercising its discretion whether or not to approve the scheme, pursuant to s411(6). It is to be remembered that it is not for the Court to usurp the shareholders' decision, by attempting to intrude its own commercial judgment, where there has been adequate disclosure, compliance otherwise with legal requirements and the scheme is on its face sufficiently fair as to be capable of being put to the shareholders for their approval or rejection. "… the court will determine: (1) whether all the conditions required by CLs411 have been complied with; (2) whether the majority of members or creditors, though acting regularly, have acted in good faith and not in pursuit of some illegitimate purpose; and (3) whether the proposal was 'at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such member, might approve it'.10 Fundamentally, the jurisdiction is supervisory; the court is concerned to be satisfied that there has been an absence of oppression and that the compromise or arrangement is one which is capable of being accepted: see Re Dorman Long & Co Ltd [1934] Ch 635; Scottish Insurance Corp Ltd v Wilsons and Clyde Coal Co Ltd [1949] AC 462 at 486. 10 Per Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 247.

Cleary & Anor v Australian Co-opertive Foods Limited

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Before

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Judgment (10 paragraphs)

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Cases Cited (1)