CORPORATIONS - Proposed merger - Application for convening a meeting of shareholders - Function of the Court - Proxies - Corporations Act 2001 (Cth) ss 249X(3), 250D, 411, 1319; Coachcraft Ltd v SVP Fruit Co Ltd

1 This is an application by Plantic Technologies Limited ("Plantic") for orders under s 411 of the Corporations Act 2001 (Cth) ("the Act") for the convening of meetings of its shareholders and option holders[1] to vote on proposed schemes of arrangement.

2 On 29 July 2010 Plantic and Gordon Merchant No.2 Pty Ltd ("Gordon Merchant") entered into a merger implementation agreement which proposed that Gordon Merchant would acquire all of the Plantic shares, including Plantic shares owned by Gordon Merchant's associates. Gordon Merchant already holds approximately 18.4% of the issued shares and Gordon Merchant's associates hold approximately 0.5% of the ordinary shares in Plantic. The share acquisition will be for cash of eight British pence for each scheme share.

3 On 8 September 2010 Plantic announced a proposal that all options would be cancelled to take place by way of a scheme of arrangement between Plantic and its option holders. Option holders will receive cash consideration from Plantic for options that are cancelled. The amount of cash consideration will be determined in accordance with a table set out in an affidavit of Bronwyn Margaret Constance, one of Plantic's directors.

4 In Re Orica Limited[2] I set out the function of the Court on an application to convene a meeting under s 411. That function essentially is:

(a) to consider whether the scheme booklet that will be provided to the shareholders sufficiently discloses the detail and effect of the scheme to enable shareholders to make an informed decision on how to vote;

(b) to consider procedural issues about the calling and conduct of the meeting;

(c) to ascertain whether the Australian Securities & Investment Commission has had reasonable opportunity to examine the proposed scheme; and

(d) to consider whether there may be matters that may make it unlikely that the scheme would be capable of a grant of approval by the Court if, in due course, its approval is sought and so make it futile to put the scheme to the shareholders for their vote.[3]

5 I am satisfied on (a), (b) and (c). Some issues arose that are relevant to (d).

6 The first issue concerns intended votes by holders of depositary interests. In 2007 Plantic shares were listed on the alternative investment market of the London Stock Exchange. In order to facilitate trading of Plantic's shares on that exchange, Computershare Investor Services Plc (the "Depositary") issued depositary interests to Plantic shareholders in accordance with the "Deed in Respect of Plantic Technologies Limited Depositary Interests" dated 17 April 2007. Holders of depositary interests are registered in the Depositary Interests Register. Each depositary interest evidences the depositary interest holder's underlying interest in one Plantic share, which is registered on the Plantic share register in the name of Computershare Clearing Pty Ltd (the "Custodian"). The shares are held by the Custodian on trust for the depositary interest holder on the terms of the deed in respect of depositary interests. Each depositary interest entitles the holder to the benefit of all of the rights and entitlements received by the Depositary or the Custodian with respect to the underlying Plantic shares, including the right to attend and vote at meetings of Plantic shareholders. However, the Custodian appears on Plantic's share register as a single member without the capacity in which it holds those shares being noted on the register.

7 The proposed notice of the share scheme meeting provides that holders of depositary interests can vote at the share scheme meeting either by instructing the registered holder of their Plantic shares, the Custodian, on how to vote using the enclosed personalised form of instruction or by requesting that they or their representative be appointed by the Custodian to attend and vote on behalf of the Custodian at the share scheme meeting, using the enclosed form of instruction.

8 The Depositary and the Custodian have raised concerns about the ability of the Custodian to allow the holders of depositary interests to attend and vote at the share scheme meeting on its behalf. In particular, they are concerned that the Custodian may be restricted by s 250D(3) of the Act from appointing deposit interest holders as its representative. Section 250D provides that a body corporate may appoint more than one representative, but only one representative may exercise the body's powers at any one time. The concern is that this would mean that only one representative would be able to vote. They are also concerned that if the Custodian appointed both a proxy to represent instructions from deposit holders and a corporate representative, the proxy would be unable to vote by reason of s 249Y(3) of the Act and cl 23.1(e) of the Plantic Constitution. Section 249Y and cl 23.1(e) provide that a proxy's authority to vote is suspended whilst the member is present at the meeting.

9 In view of these concerns, Plantic seeks a direction under s 1319 of the Act that depositary interest holders may vote at the meeting by instructing the Custodian on how to vote or by requesting the Custodian to appoint them to attend and vote at the meeting on behalf of the Custodian as the Custodian's representative in relation to the shares held on trust for the particular depositary interest holder.

10 Whether the Court should make the direction sought should be considered in light of the function of the Court on an application for an order convening a meeting.[4] If it is clear that depositary interest holders are unable to vote in the manner contemplated, it would be futile to make such a direction as the invalidation of their votes may mean that the Court would not approve the scheme at the second court hearing.

11 I am sufficiently persuaded for present purposes that depositary interest holders may vote in the manner contemplated and that the direction sought should be made.

12 First, by cl 5.1 of the Depositary Interest Deed, the Depositary itself or through the Custodian holds the Plantic shares as bare trustee for the benefit of the holders of the depositary interest as tenants in common and each of the holders of the depositary interest is entitled to rights in relation to the Plantic shares accordingly.

13 Secondly, cl 5.3.1 of the same deed provides amongst other things, that:

Any such rights or entitlements to cash distributions, to information to make choices and elections, and to attend and vote at general meetings shall, subject to other provisions of this Deed, be passed onto the relevant Holder(s) forthwith upon being received by the Custodian together with such amendments or such additional documentation as shall be necessary to effect that passing on.

In other words, the right to attend and vote at general meetings is passed onto the depositary interest holders

14 Thirdly, it is sufficiently clear for present purposes that the voting interests of the Custodian and the interests of the depositary interest holders will be the same. In Coachcraft Ltd v SVP Fruit Co Ltd[5] the Privy Council held that the chairman of a meeting had correctly disallowed the votes tendered by a person appointed proxy by vendors of certain shares because the voting power was not exercised in the interests of the vendors but, rather, in the interests of the purchaser. Coachcraft is referred to in paragraph 7.560 of Ford's Principles of Corporations Law[6] in which the learned authors state:

A proxy is a person with an authority to vote in the interests of the person who appoints the proxy. Such an authority is distinct from an authority given to a person (such as the purchaser of the relevant shares) to use the voting power attached to the shares in his or her own interests or in the interests of some person other than the person giving the authority.[7]

I accept the submission that Coachcraft is distinguishable for present purposes.

15 In the circumstances, I consider that it is appropriate to make the direction sought. However, the making of the direction does not preclude further debate on this point at the second court hearing nor does it foreclose the issue, as the submissions in support of making the direction under s 1319 of the Act were made without a contradictor.

16 The next issue for consideration is that the shares in Plantic that are held by Custodian represent 80% of the company's issued shares. This may have consequences in relation to the head count test imposed by s 411(4)(a)(ii) of the Act, but I am presently satisfied that it does not preclude me from making an order for the convening of a meeting.

17 Next, I was also referred to specific aspects that the Courts generally address concerning the existence of a deemed warranty provision, a break free payable by Plantic and performance risk. I am satisfied that each of those matters is not a barrier to an order being made to convene a meeting. I also note the absence of exclusivity provisions and steps taken by the independent board of Plantic to solicit a superior circumstance.

18 Accordingly, for the above reasons I am satisfied that orders under s 411(1) of the Act should be made.

[1] The state of the authorities is that s 411 of the Act applies to option holders, who are classified as creditors for that purpose: Re MIA Group Ltd [2004] NSWSC 712; (2003) 22 ACLC 1272; Zenyth Therapeutics Ltd v Smith (2006) 24 ACLC 1507.

[2] [2010] VSC 231 (Unreported, Davies J, 28 May 2010).

[4] Re Prime Infrastructure Holdings Ltd [2010] NSWSC 1104 (Unreported, Barrett J, 24 September 2010).

[5] (1980) 28 ALR 319.

[6] H A J Ford, R P Austin and I M Ramsay, Ford's Principles of Corporations Law, (12th ed, 2005).