- CMPS&F Pty Ltd v Crooks Mitchell Ltd

Orders in respect of the company schemes of arrangement

The first company scheme which is the subject of this application is between AGL and its members ("AGL scheme") and the terms of that scheme is set out in Annexure E to the explanatory memorandum. Under that scheme, AGL is required to make (and procure AFML, in its personal capacity and as trustee of Aspen Select Property Fund, to make) in-specie distributions of APPT securities to relevant AGL shareholders on a pro-rata basis. (The concept of "relevant AGL shareholders" excludes ineligible foreign shareholders, and the AGL shares held by those shareholders are to be transferred to a sale nominee.) Each relevant AGL shareholder authorises and directs AGL to apply on its behalf for the issue of new APPML shares and new APPT units at the issue prices specified in the scheme. AGL is required to make a capital return to relevant AGL shareholders to be applied by AGL on behalf of the shareholders in applying for new APPML shares and new APPT units, and AGL must issue new AGL shares at the issue price specified in the scheme to relevant APPML shareholders and APPT unitholders. Each relevant AGL shareholder agrees that after the implementation of the merger, AGL shares may only be transferred if there is a simultaneous transfer of the same number of APT units, APPML shares and APPT units, representing a four-way stapling.
The second company scheme which is the subject of this application is between APPML and its members ("APPML scheme") and the terms of that scheme is also set out in Annexure E to the explanatory memorandum. That scheme provides that APPML is required to apply, on behalf of each relevant APPML shareholder, to AGL for the issue of new AGL shares and to AFML as responsible entity of the APT for the issue of new APT units at the issue prices specified in the scheme. APPML is required to make a capital return to relevant APPML shareholders to be applied by APPML on behalf of those shareholders for new AGL shares and new APT units. APPML must issue relevant AGL shareholders and relevant APT unitholders with new APPML shares at the issue prices set out in the scheme. The APPML scheme also contains a Sale Nominee and Sale Facility in broadly corresponding terms to that provided for in the AGL scheme, with the addition that APPML shareholders who elect to receive some or all of the merger consideration in the form of cash may also have any Merged Group Securities they retain, as a result of a cap on the amount payable under the buy-back and pro rata scaling back, sold pursuant to the Sale Facility.
It is proposed that two separate meetings of APPML shareholders will be convened for the purposes of the APPML scheme. Holders of fully paid ordinary shares in APPML (excluding AGL, AFML and AFML (in its capacity as trustee of Aspen Select Property Fund) ("AGL Group Entities")) will be entitled to vote in the first meeting while only the AGL Group Entities will be entitled to vote in the second meeting.
The Plaintiffs rely on several affidavits in support of the application. I will not seek to list all of those affidavits. I note, however, that the Plaintiffs rely on the affidavit of Mr Adam Marrs Ekamper dated 21 October 2015. Mr Ekamper is the Chief Financial Officer of AGL and his affidavit deals with a number of substantive aspects of the proposal, including the structure and background to the proposal; the terms of the merger implementation deeds and proposed timetable, including exclusivity provisions to which I will refer below; and also outlines the relatively complex transactions contemplated by the proposal to which I will also refer below. Mr Ekamper also refers to alternative forms of consideration that are proposed to be available to APPF securityholders and to a sale facility which would be applicable in respect of certain APPF securityholders who elect for cash consideration, in particular circumstances. Mr Ekamper also refers, on information and belief and in the absence of the chairman of the relevant entities overseas, to the chairman's willingness to chair the relevant meetings, and also gives evidence of the verification and due diligence processes which have been adopted in respect of the scheme and steps which have been taken to manage conflicts of interest in that regard.
Mr Barker, the Head of Funds Management of AGL, also gives affidavit evidence in respect of the due diligence and verification process, and there is evidence, in common form, of alternate persons who would act as chairman of the scheme meetings if the companies' chairman does not do so. There is also evidence, again in common form, as to the process by which an independent expert's report contained in the proposed explanatory memorandum for the schemes has been prepared. Mr Murphy, a partner in the firm representing the Plaintiffs, sets out the Plaintiffs' dealing with Australian Securities and Investments Commission ("ASIC"), ASX and the due diligence and verification process which has been adopted.
I should now turn to the nature of the Court's jurisdiction in respect of a first scheme hearing under s 411 of the Corporations Act and the first hearing of an application for judicial advice in respect of a trust scheme. The first stage, in respect of a scheme of arrangement under s 411 of the Act involves the Court's approval of the convening of a scheme meeting and approval of the scheme booklet. Mr Jackman and Mr Thomas, in their submissions, draw attention to the helpful summary of the Court's role in respect of the first hearing by Barrett J in Re Westfield Holdings Limited [2004] NSWSC 458; (2004) 49 ACSR 734 at 736, where his Honour identified several relevant matters that should be considered in determining whether to convene the first meeting, involving matters as to which the Court must be satisfied, and several wider matters, including the likelihood or otherwise of the Court's approving the scheme of arrangement, if a statutory majority of shareholders is achieved at the proposed scheme meeting, and whether there has been sufficient disclosure to the persons who will be affected by the scheme and a reasonable opportunity for ASIC to examine the terms of the scheme.
The case law establishes that the Court's role is not to substitute its business or commercial judgment for that of security holders to whom the scheme of arrangement is directed: Re Prime Infrastructure Holdings Limited [2010] NSWSC 1104; (2010) 80 ACSR 193 at [13]. In particular, the Court will have regard to several matters at the first hearing, including whether the plaintiff is a Pt 5.1 body; whether the scheme is an arrangement within the meaning of s 411 of the Act; the adequacy of disclosure, to which I have previously referred; the fact that the scheme is proposed in good faith; and, as I have noted above, ASIC's opportunity to examine the proposed scheme and to make submissions to the Court. In considering the wider matters to which I have referred, the Court will have regard to whether the scheme is one that sensible business people might consider is of benefit to its members, and leave would be given to convene the relevant meeting if the proposed arrangement is one that seems to be appropriate for members' consideration and is likely to gain the Court's approval if passed by the necessary majorities: Re ACM Gold Limited; Re Mt Leyshon Gold Mines (1992) 34 FCR 530 at 535.
I accept, for the reasons set out in Mr Jackman's and Mr Thomas' submissions, that each of the matters ordinarily required to make orders in respect of the company schemes has been satisfied. Each of AGL and APPML is a Pt 5.1 body as defined in s 9 of the Act. The schemes are properly described as in the nature of a compromise or arrangement within the scope of s 411 of the Act. There is evidence that ASIC has been served with the Originating Process, a draft of the securityholder booklets and explanatory memorandum more than 14 days before the first hearing date, and ASIC has in any event indicated in respect of each company that it does not seek to make submissions or intervene to oppose the scheme at this stage, although, consistent with its usual practice, it has left any final expression of a view as to s 411(17)(b) of the Act to the second hearing. As I have noted above, there is evidence as to the steps which have been taken by way of due diligence and verification in respect of the content of the explanatory memorandum, and an independent expert's report provides information relevant to securityholders' consideration of the proposals and expresses the view that the transaction is fair and reasonable and/or, relevantly, in the best interests of both security holders of the Aspen Group and APPF.
I have also had regard to several other issues in determining whether the Court should order the first meetings in respect of the companies and the trust. First, as I have noted above, and as Mr Jackman and Mr Thomas fairly observed in submissions, the transactions contemplated by the proposals are relatively complex, although I also note that they are set out with clarity in a summary in section 10.6 of the explanatory memorandum for the schemes. Mr Jackman and Mr Thomas have taken me, in submissions, through the underpinnings to each of the relevant transactions, in terms of the provisions in the Corporations Act, in respect of the companies, the schemes and the proposed constitutions of each of the entities. I note that the third step in the transactions, involving the distribution, in specie, by AGL and associated entities of securities in APPF to its shareholders appears to be authorised by clauses 17.5 and 17.6 of AGL's proposed constitution, which also provides a mechanism for shareholders' agreement to receive those securities, and that transaction does not raise, as Mr Jackman fairly points out, any issue of in specie distribution of trust assets of the kind considered in Wellington Capital Ltd v Australian Securities and Investments Commission [2014] HCA 43; (2014) 106 ACSR 12. On the face of it, each of the transactions that are proposed is one that would be authorised by, relevantly, the Corporations Act, the scheme and the proposed constitutions of the relevant entities.
I have also had regard to the complexity of the relevant documents, although it should be noted that the explanatory memorandum could not be described as unique in that respect. The length and relative complexity of the explanatory memorandum seems to me to reflect the complexity of the relevant transaction and the need to provide information to securityholders for the various purposes served by that document. It seems to me that the proponents have done that which can reasonably to be done to maximise the prospect that securityholders will be able to access relevant information, including preparing securityholder booklets which draw attention to key issues addressed in the explanatory memorandum in greater detail and questions and answers which highlight significant issues and cross-reference the explanatory memorandum to where more detailed information is found. It seems to me that securityholders have been provided with information in a form that is likely to assist them in identifying those parts of the explanatory memorandum which they may wish to read to properly inform themselves as to the matters which are of greatest interest to them if they ultimately do not read the entirety of the document.
I have also had regard to several specific issues which were fairly raised by Mr Jackman and Mr Thomas in submissions. They point out that the cl 10 of the Merger Implementation Deed contains an exclusivity provision involving "no shop" and "no talk" provisions in relatively common form and the "no talk" provisions is subject, appropriately, to a fiduciary exception, and those provisions are fairly disclosed in the explanatory memorandum. The case law to which Mr Jackman and Mr Thomas refer confirms that that does not provide any reason to decline to convene the scheme meeting: Re Macquarie Private Capital A Limited [2008] NSWSC 323; (2008) 26 ACLC 366 at [18]-[19]; Re Coles Group Limited [2007] VSC 389; (2007) 25 ACLC 1380 at [62]-[63]; Re Hostworks Group Ltd [2008] FCA 64; (2008) 26 ACLC 137 at [34]-[37].
Mr Jackman and Mr Thomas also fairly recognise that there are a range of connections between AGL and APPF, including AGL's significant interest in APPF and its involvement with the responsible entity of APPT and the management of APPF, and the existence of common boards of AGL and AFML. Mr Jackman and Mr Thomas refer to the steps which have been taken to manage conflicts of interest, which are also addressed in Mr Ekamper's affidavit as I noted above, and those matters are also addressed in the explanatory memorandum. They also refer, in submissions, to a sale facility in respect of shares held by ineligible foreign securityholders and a deemed warranty to be given by such securityholders, which are each in common form, and have been accepted by the case law where fairly disclosed in the explanatory memorandum: Re APN News & Media Limited [2007] FCA 770; (2007) 62 ACSR 400 at [62]; Re Hostworks Group Ltd above at [41]; Re Coles Group Ltd above at [45]; Re Macquarie Private Capital A Limited above at [14]; Re Mitchell Communication Group [2010] VSC 423 at [10]-[12]; Re Rural Press Limited [2007] FCA 314; (2007) 61 ACSR 373 at [20]. I have had regard to both the question of management of conflicts of interest and that matter, and it seems to me that neither provide a reason not make an order to convening the scheme meetings.
Mr Jackman and Mr Thomas, and Mr Ekamper's affidavit, also fairly draw attention to an advertisement published in the media by a third party, Discovery Park Holdings Pty Ltd and Beston Parks Land Co Pty Ltd as trustee for Beston Accommodation Parks Trust, which invites certain holders of APPF securities to sell those securities to that third party at a specified price and to various criticisms which that third party has advanced of disclosures in earlier information concerning the scheme, in correspondence with ASIC and the solicitors for the Plaintiffs. The Plaintiffs drew attention to steps which have been taken to address several of those criticisms by providing disclosure in the explanatory memorandum, and my attention has been drawn to the amendments which address those issues. I am satisfied that those matters do not provide reason not to convene the scheme meeting. I would add that the third party's solicitors requested the Plaintiffs' solicitors to draw their correspondence to the Court's attention and the Plaintiffs have done so, both in Mr Ekamper's affidavit and in submissions. It seems to me that I should fairly remark that, notwithstanding the third party's having raised those matters in correspondence, it did not choose to appear or seek to make submissions on those matters when the matter was called, and it did not seek to support, by direct submissions to the Court, those matters which it had raised in correspondence.

Developments after 23 October

On 26 October 2015, the Plaintiffs' solicitors advised the Court that Beston Parks Land Co Pty Ltd as trustee for Beston Accommodation Parks Trust (which, it appears is one of the entities that had previously made an invitation to certain APPF securityholders to which reference was made in the evidence at the hearing on 23 October 2015 and to which I have referred above) ("Discovery Parks") had served a bidder's statement, that had been lodged with ASIC on 23 October, on the Plaintiffs after the making of my orders of 23 October 2015. That bidder's statement comprised an offer by Discovery Parks to acquire all APPF securities at an offer of $0.58 per stapled security.
By letter dated 30 October 2015, the Plaintiffs' solicitors advised the Court that AGL had, on that day, announced a revised proposal for a merger with APPF which proposed, subject to orders of the Court, that the merger would proceed in substantially the same form as was considered at the Court hearing on 23 October 2015, but with changes to timetabling and the consideration payable under the merger. The matter was relisted for further hearing on 3 November 2015 to address those developments.
The Plaintiffs put a revised proposal before the Court at the hearing on 3 November 2015 which increased the consideration payable by Aspen Group, comprising AGL and APT, under the proposed merger such that APPF securityholders (other than ineligible foreign securityholders) who participated in the buy-back facility would receive $1.40 per merged group security, which was equivalent to $0.60 per APPF security (previously $0.52) and the cap on the cash consideration was increased from $35 million to $40.5 million. A revised explanatory memorandum and marked up versions of changes to the company schemes and the APT and APPT supplemental deeds were provided to the Court. A revised explanatory memorandum was also provided to the Court, which contained a revised independent expert report. The independent expert concluded, in that revised report, that the AGL scheme was fair, reasonable and in the best interests of securityholders, and that the APPML scheme was fair, reasonable and in the best interest of securityholders absent a superior proposal. The independent expert addressed the consideration offered to APPF securityholders under Discovery Parks' bidder's statement in addressing those views.
The Plaintiffs relied at that further hearing on a second affidavit of Mr Ekamper dated 3 November 2015, which set out proposed revisions to the timetable for the scheme resulting from developments in respect of Discovery Parks' bidder's statement and the amended proposal, which had the result that the relevant meetings would be deferred until 9 December 2015, the second Court hearing would take place 11 December 2015, and the effective date of the scheme, if approved, would be 14 December 2015. That affidavit also addressed the changes to the merger proposal that had been made by Aspen Group following the service of the Discovery Parks' bidder's statement and attached an amended explanatory memorandum, amended securityholder booklets and supplemental deeds, and reconfirmed the position in respect of due diligence and verification, including in respect of changes to the merger proposed documents. That affidavit also referred to information which had been released by announcements to Australian Stock Exchange Limited in respect of developments. A further affidavit of Mr Barker referred to a further meeting of the due diligence committee meeting since the first Court hearing, and to preparation of an updated verification report in respect of the amended explanatory memorandum and further steps that had been taken in the due diligence process.
Each of Mr Ekamper and Mr Barker confirmed that, having regard to their own knowledge of Aspen Group and APPF, they were not aware of any statement in relevant information contained in the relevant information included in the amended explanatory memorandum which was, or was likely to be false or misleading or deceptive, or of their being any material omission from the information included in the amended explanatory memorandum, or anything that caused them to believe that the issue of that information may involve misleading or deceptive conduct or conduct that was likely to mislead or deceive.
A further affidavit of one of the independent experts, Mr Hughes, referred to the revision of the independent expert report to address, inter alia, the revised terms of the proposed merger, changes in the price of the relevant securities and exchange rates and other market evidence since the previous draft of that report was prepared, and reconfirmed that he held the opinions contained in that report and was prepared to sign a copy of that report to be included in the explanatory memorandum.
By an affidavit read at that further hearing, Mr Frank Zipfinger indicated his willingness to act as chairman of the AGL scheme meeting and the APPML scheme meeting, and further affidavits of Messrs Farrands and Gillard were read by which they reconfirmed their willingness to act as chairman of the AGL scheme meeting and the APPML scheme meeting respectively if Mr Zipfinger did not do so. A further affidavit of the Plaintiffs' solicitor, Mr Murphy, dealt with correspondence with ASIC since the first Court hearing, and further "no objection" letters from ASIC were in evidence in respect of each of the AGL and APPML schemes, and there was also evidence that ASX had reconfirmed the in principle waivers and confirmations previously provided by it in respect of the first court hearing.
The Plaintiffs submit that, in these circumstances, and where they no longer wished to propound the schemes in the form considered by the Court on 23 October 2015, the orders made on that date should be vacated. They acknowledged that they were, strictly, in default of those orders which had contemplated that the approved explanatory memorandum be distributed to securityholders by 2 November 2015. They submitted that that default did not warrant declining to vacate the original orders, or declining to make further orders, where the Plaintiffs had previously taken steps to advise the Court of developments. I accept that submission, where it seems to me that the despatch of the explanatory memorandum, in its original form, would have given rise to confusion for securityholders, where the Plaintiffs wished to proceed with an amended and not the original proposal.
Mr Jackman, who appeared with Mr Thomas for the Plaintiffs, relied on the proposition that the Court had jurisdiction to vacate its earlier order made on 23 October, both because it was an interlocutory order where there had been a change of circumstances which justified vacating the order, and alternatively under s 1319 of the Corporations Act, which provides that: "Where, under this Act, the Court orders a meeting to be convened, the Court may, subject to this Act, give such directions with respect to the convening, holding or conduct of the meeting, and such ancillary or consequential directions in relation to the meeting, as it thinks fit." It is, of course, well established that the Court may adjourn or cancel a meeting which it has already ordered under that section, where events have developed such that that meeting will no longer be of utility: CMPS&F Pty Ltd v Crooks Mitchell Ltd (1997) 76 FCR 366; Re Australian Gas Light Company [2006] FCA 346; (2006) 57 ACSR 67; Re Lend Lease Primelife Ltd; Re Lend Lease Village Responsible Entity Ltd [2009] NSWSC 1340 at [16]; Re Cellestis Ltd (No 2) [2011] VSC 329 at [2]; Re Aurora Oil & Gas Ltd [2014] FCA 612 at [3]; Re Amcom Telecommunications Ltd (No 2) [2015] FCA 410 at [10].
It seems to me that the Court also has power to vacate orders which it has made that would permit that meeting to be convened, where it has not yet been convened, whether in its inherent jurisdiction or under s 1319 of the Act, and then to make orders convening a further meeting. It seems to me that no useful purpose would be served by holding a meeting to consider the original proposal, where the Plaintiffs now seek to propound the revised proposal, and the matters that I considered at the first hearing and the further matters set out above addressed at the second hearing support the making of orders, corresponding to those made at the first hearing, in respect of the amended proposal.
Accordingly, on 3 November 2015, I vacated the orders made on 23 October 2015 and made further orders in the form proposed by the Plaintiffs on 3 November 2015.

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Judgment (7 paragraphs)

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