CORPORATIONS - Schemes of arrangement - Acquisition of shares and... [2011] VSC 102 | Case summary

Supreme Court of Victoria|2011-04-01|Before: CROFT J

1st Revision: 19 May 2011 - [11], [12], [13], [14], [15], [19], [25], [26], [27], [30] and [33]

1 On 7 March 2011, the plaintiff, AXA Asia Pacific Holdings Limited ("AXA APH") sought an order for the approval of the share scheme and the rights scheme, referred to in more detail below, under sub-ss 411(4) and /or 411(6) of the Corporations Act 2001 (Cth) ("the Act").

2 On 14 January 2011, AXA APH sought and obtained orders under sub-s 411(1) of the Act that:

(a) a meeting of a class of the holders of its shares ("minority shareholders") be convened for consideration of a proposed scheme of arrangement ("Share Scheme") between AXA APH and those members; and

(b) meetings of a class of its creditors ("Rightsholders"), being all the holders of certain rights to acquire its ordinary shares ("AXA APH Rights") be convened for consideration of a proposed scheme of arrangement ("Rights Scheme") between AXA APH and those creditors,

3 On 7 March 2011, I approved the schemes, giving short reasons which I repeat here together with the substance of the submissions made to me, which I accepted.

4 AXA APH is a public company incorporated in Australia. It is a company limited by shares and admitted to the official list of the ASX. It is a financial services company with wealth management and life insurance and financial protection businesses in Australia, Hong Kong, China, India and a number of countries in South-East Asia. AXA SA is a French financial services company offering insurance, re-insurance, savings and pensions products and asset management services in Europe, North America and Asia. AXA SA has a 53.9% interest in AXA APH.

5 AMP Limited ("AMP") is a public company limited by shares and admitted to the official list of ASX and the official list of NZX. AMP Financial Services Holdings Limited is a public company limited by shares incorporated in Australia and is a wholly owned subsidiary of AMP. AMP and its subsidiaries also provide financial services, including those of a similar nature to those provided by AXA APH.

6 The Share Scheme and the Rights Scheme were being offered for consideration in the context of a series of transactions under which it was proposed that:

(a) AMP Financial Services Holdings Limited acquire, by means of the Share Scheme, all of the shares in AXA APH other than shares ("excluded shares") held:

(i) by AXA SA and its subsidiary Societe Beaujon; or

(b) AMP Financial Services Holdings Limited acquire, pursuant to a share sale deed, all of the shares in AXA APH held by AXA SA and Societe Beaujon;

(c) AXA SA acquire, pursuant to a share sale agreement with AXA APH and one of its subsidiaries, shares in certain subsidiaries of AXA APH carrying on business in jurisdictions other than Australia and New Zealand; and

(d) the Rights Scheme effect the cancellation of all of the AXA APH rights upon a cash consideration being paid for such cancellation by AMP Financial Services Holdings Limited.

The minority shareholders are the holders of all AXA APH shares other than excluded shares. As at 14 December 2010, the minority shareholders held approximately 46.1% of the shares in AXA APH and the shares had a market value (as at 17 December 2010) of approximately $6 billion.

7 The transactions referred to in paragraph (a), (b) and (c) of the preceding paragraph are interdependent. The Rights Scheme is conditional upon the other three transactions proceeding, but those transactions are not conditional upon the Rights Scheme proceeding.

8 The consideration under the Share Scheme will consist of 0.73 AMP ordinary shares plus a variable amount of cash for each AXA APH share. The cash amount will vary, depending upon the arithmetic average of the daily volume weighted average AMP share price for the ten trading days following the effective date of the Share Scheme ("Post Scheme AMP VWAP"), subject to a maximum cash amount per AXA APH share of $3.145. If the Post Scheme AMP VWAP is in the range of $4.50 to $5.60, the cash amount will be varied so that the value of the Consideration will be $6.43 per AXA APH share. If the Post Scheme AMP VWAP is greater than $5.60, the cash consideration will be reduced such that the AXA APH shareholders will receive 50% of the benefit of the increase in value of the share component. If the Post Scheme AMP VWAP is below $4.50, then the value of the Consideration will be less than $6.43 as the cash amount is capped at $3.145 per AXA APH share.

9 Under the Rights Scheme, all AXA APH rights on issue will be cancelled pursuant to a scheme of arrangement in exchange for cash. The cash consideration for the cancellation will depend upon whether the rights are in-the-money (i.e. their exercise price is lower than the Consideration under the Share Scheme) or out-of-the-money (ie their exercise price is equal to or greater than the Consideration). For rights that are in-the-money, the cash consideration will be equal to the intrinsic value of the rights (i.e. the difference between the value of the Consideration and their exercise price). For rights that are out-of-the-money, the cash consideration will be determined on the basis of the option value of the rights and, for unvested rights, an estimate of the probability that the rights will vest.

10 The details of and conditions attaching to the Share Scheme, the Rights Scheme and the entitlements of minority shareholders and Rightsholders under each Scheme were set out in the Explanatory Memorandum - for the proposed merger of the Australian and New Zealand Businesses of AXA - Asia Pacific Holdings Limited with AMP Limited and for the sale of the Asian Businesses to AXA SA ("the Explanatory Memorandum").

11 The meeting of the minority shareholders was duly convened and held and a resolution agreeing to the Share Scheme was duly agreed by the majority stipulated in sub-s 411(4)(a)(ii) of the Act. The results of the vote were as follows:

Shares held by minority shareholders as at 28 Feb 2011

569,622,184 (59.8% of shares held by minority shareholders)

12 The meetings of the Rightsholders were also duly convened and held, and the resolutions agreeing to the Rights Scheme were agreed to by the majorities stipulated in section 411(4)(a)(i) of the Act. In addition, the combined result of the meetings is that the Rights Scheme was agreed to by the statutory majority.

Value of rights held by rightsholders as at 28 Feb 2011

Matters identified at the hearing before Associate Justice Efthim

13 Associate Justice Efthim conducted the inquiry on 4 March 2007 and by order on that day declared that the Share Scheme meeting and each of the Rights Scheme meetings had been duly convened and held and the resolutions thereat duly passed. Associate Justice Efthim also declared, pursuant to Rule 16.63(b) of the Supreme Court (Corporations) Rules 2003 that he was of the opinion that there were certain irregularities in the convening of the meetings.

14 In relation to the Share Scheme, Associate Justice Efthim identified three matters as irregularities in the convening of the meeting:

(a) Associate Justice Efthim was unable to be satisfied in the case of one shareholder that the Explanatory Memorandum and accompanying documents had been posted. The circumstances were described in the affidavit of Danielle Charles affirmed 1 March 2011 (at paras 22 ff). The number of shares held by that shareholder (1,260) and the fact that he neither appointed a proxy form nor attended the Share Scheme meeting were deposed to in the second affidavit of Danielle Charles affirmed 2 March 2011. It is clear that if Mr Brain was not given notice of the meeting, this was because of some failure in the usual process within the Computershare office which, on the evidence, can properly supposed to have been accidental, and the validity of the meeting is preserved by s 1322(3). His vote could not have affected the result;

(b) the Shareholder Reference Number (SRN) or Holder Identification Number (HIN) was not printed on the proxy forms sent to addresses which the share registrar had reason to believe were no longer the shareholder's address. Although this was a departure from the requirements of the 14 January 2011 orders, it was a reasonable precaution taken to protect the interests of the shareholders whose presence at the registered address was uncertain, and would justify any additional process any such shareholder might have to take to establish their right to vote at the meeting in the event they had in fact received the documents; and

(c) a large number (37,674) of shareholder packs for shareholders in New Zealand were not sent by airmail or air courier, but rather by means of a service offered by Australia Post whereby bulk mail to New Zealand is shipped by Air to New Zealand Post and delivered as domestic mail by New Zealand Post. The affidavit of Graham Douglas Berry and Exhibit GDB-3 thereto show that shareholder packs for New Zealand shareholders were delivered to Australia Post in three large batches (totalling 37,200) on 24 and 25 January 2011 and a final batch of 474 on 27 January 2011. The affidavits of Sebastian Erna and Ross James Hageman, both dated 6 March 2011, which were filed on this question, show that delivery of the last of the shareholder packs is likely to have been made to New Zealand shareholders on or about 17 February 2011. Although it is possible that the method of dispatch adopted resulted in longer delivery times than for direct airmail for some if not all New Zealand shareholders, delivery to them was nevertheless well before the proposed meeting date and in ample time for them to determine what course of action to take. It does not appear that this irregularity would have unduly prejudiced any of those shareholders.

15 In relation to the Rights Scheme, Associate Justice Efthim identified two matters as irregularities in the convening of the meetings:

(a) an Explanatory Memorandum and associated documents was not sent to one Rightsholder on the register on 19 January 2011 because prior to the dispatch of documents to Rightsholders those rights had lapsed (see the confidential affidavit of Barry Scott Gilbert affirmed 1 March 2011, para 7). It does not appear that this irregularity would have had any impact on the voting at the meetings of rightsholders, because on any basis the person concerned would not have been on the register on 28 February 2011. Consequently, there is no reason arising from this irregularity to refuse to give effect to the will of the subsisting rightsholders as expressed at the meeting; and

(b) the self addressed envelopes sent to overseas Rightsholders were not prepaid (see the affidavit of Tony Frank Kaps sworn 1 March 2011). Mr Kaps stated (at paragraph 32 of his affidavit) that there is no internationally consistent system for processing reply paid mail, with the consequent risk of loss. The terms of the order of 14 January 2011 requiring the inclusion of a pre-paid envelope depart from established practice in this regard (as illustrated by a comparison with the corresponding order made in relation to shareholders) and arose from the fact that there were overseas rightsholders who may have been overlooked. In all the circumstances, and balancing the additional inconvenience to overseas rights holders of purchasing stamps against the risks suggested on behalf of AXA APH that an international reply paid envelope may not have been effective, I am of the view that this irregularity should not lead the Court to disregard a resolution supported by 100% of the rightsholders voting at the meetings.

Notice of hearing of application for approval of schemes

16 The Explanatory Memorandum included statements to the effect that:

(a) the plaintiff intends to apply to the Court on 7 March 2011 for approval of the schemes; and

(b) in order to become effective, the schemes must be approved by an order of the Court.

17 On 18 February 2011 a notice of this hearing was published in The Australian newspaper in accordance with order 27 of the 14 January 2011 orders (see third affidavit of Michael Tandora affirmed 25 February 2011, exhibit MT-5).

18 There are no specific requirements contained in the Act or the Rules for notice of the application to be given to ASIC. Nevertheless, a third affidavit of Joseph Muraca, dated 4 March 2011, established that the 14 January 2011 orders were served on ASIC as well as the orders of Associate Justice Efthim and the written submissions to be relied upon at this application.

19 The schemes are each subject to a number of conditions being satisfied. These conditions precedent are referred to in clause 2 of the Share Scheme (set out in Appendix 3 (page 259) of the Explanatory Memorandum), and clause 2 of the Rights Scheme (set out in Appendix 4 (page 274) of the Explanatory Memorandum). Each of these cross reference the conditions precedent to the Framework Deed which are summarised at pages 294 and 295 of the Explanatory Memorandum).

20 Clause 3.13 of the Framework Deed provides that at the second court hearing AXA APH, AMP and AXA SA will provide to the Court certificates confirming whether or not the conditions precedent to the schemes (other than the conditions relating to Court approval) have been satisfied or waived. These certificates were exhibited to the affidavit of Geoffrey Ian Roberts, Group Chief Financial Officer of AXA APH, sworn on 7 March 2011. Mr Roberts' affidavit also addressed the fact that the series of transactions that were to give effect to the schemes involved the setting off of promissory notes and only the balance being paid. The provision of promissory notes and then the setting off may technically constitute financial assistance under section 260A of the Corporations Act, however it does not give rise to a problem if it involves no material prejudice to shareholders or creditors. Mr Roberts' evidence was that there was no such prejudice and there has been no suggestion by ASIC or anyone else that there was.

Tracking votes by AXA, AMP and their associates

21 By the operation of a variety of definitions in the Share Scheme, particularly of "Scheme Share" and "Excluded Share", the class of members subject to the Scheme did not include the shares held by AXA SA or Societe Beaujon being purchased by AMP or any shares held by AMP or its subsidiaries, except to the extent that any such shares were held in a fiduciary capacity on behalf of third parties, funds, schemes or trusts and in which no member of the AMP Group had a beneficial interest except as trustee, responsible entity, manager or a similar capacity.

22 Separately, as a condition of relief granted to AMP and AXA SA to enable them to enter into the Framework Deed, ASIC required them to use their best endeavours to have AXA APH record separately the manner in which AXA SA or AMP, a subsidiary of either of them or any entity in which either of them have voting power of more than 20% votes ordinary shares at the meeting and report this information to ASIC, either before or at the hearing of the present application by the Court.

23 The fourth affidavit of Joesph Muraca showed that the solicitors for AXA APH, acting on information provided by or on behalf of AXA SA and AMP instructed Computershare as to the entities whose votes were to be tracked. The result of that tracking was that in relation to AMP related companies votes were cast in favour of the scheme by three relevant entities as follows:

24 The votes cast by these entities represent approximately 2.6% of the total number of shares cast on the Share Scheme resolution. In relation to AXA related companies there were two relevant shareholdings held by nominees and the votes attached to those shares were also largely in favour of the scheme.

The Court's power to approve a scheme of arrangement

25 The nature and extent of the Court's power to approve a scheme of arrangement was conveniently stated by Robson J, with reference to authorities, in Re Coles Group Limited (No 2):[1]

"[8] In Re Central Pacific Minerals NL, Emmett J of the Federal Court of Australia said that the court must satisfy 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. He also said that 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. He said the court will 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.[2]

[9] These observations are consistent with a long line of authorities, including Re Alabama, New Orleans and Pacific Junction Railway Co [sic] where Fry LJ said that the court is bound to ascertain that all the conditions required by the statute have been complied with. It is also bound to be satisfied that the proposition was made in good faith; and, further, it must be satisfied that 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 a member, might approve it. What other circumstances the court may take into consideration he did not attempt to forecast.[3] See also Zenyth Therapeutics Ltd v Smith.[4]

26 It was submitted that if the Court is satisfied that the Share Scheme has been approved by the statutory majority at the meeting ordered to be convened by the 14 January 2011 orders, the Court's discretion to approve the Share Scheme is not confined by the statute except to the extent that it may be limited by s 411(17).

27 In the case of the Rights Scheme, there is an additional requirement in s 412(7) which arises because the explanatory statement for a compromise or arrangement between a company and a class of its creditors is not required to be registered. The Court must, it was submitted, be satisfied that ASIC has had a reasonable opportunity to examine the explanatory statement and make submissions to the Court in relation to the statement. In this case, however, there was a common, registered, explanatory statement for both of the schemes. Accordingly, I accept that the Court may readily be satisfied of the matters stipulated in s 412(7).

28 Section 411(17) was introduced by the 1981 Companies Act and Codes, and its history and place in the scheme of takeover regulation was described by Robson J in Re Coles Group Ltd (No 2).[5] As observed by Robson J in that case, the prohibition in s 411(17) on the Court approving a scheme of arrangement is removed by the satisfaction of either sub-paragraph (a) or (b) of s 411(17) and that the effect of "satisfying either is the same, that is, the bar to approval is removed".[6]

29 A "no objection" statement provided by ASIC satisfying the requirements of s 411(17)(b) was provided and consequently any bar under s 411(17) to approval of the schemes will have been removed.[7]

30 The concluding words of s 411(17) are to the effect that the Court need not approve a scheme merely because ASIC has provided a no-objection statement. In Re Coles Group Ltd (No 2), Robson J said that whether or not the scheme of arrangement should be approved was a separate question and was one to be determined in accordance with the "usual considerations", being those set out in the judgment of Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Company.[8]

31 Having noted that the existence of a purpose of avoiding the operation of Chapter 6 is a relevant factor to consider in approving a scheme, and that the discretion in s 411(4) had been left at large, his Honour further observed that:

(a) where a no objection statement is given by ASIC, the question for the purpose of the Court's discretion whether or not to approve the scheme was what relevance would the existence of the purpose have in the context of ASIC having no objection to the scheme and "where, according to ASIC, members are not being adversely affected by the takeover proceeding by a scheme of arrangement rather than by a takeover scheme under Chapter 6";[9]

(b) the existence of the no objection statement carries with it, in normal circumstances, "the implication that ASIC is of the view that members have received all material information that they need for their decision, members have received reasonable and equal opportunity to share in the benefits provided under the scheme and that members are not being adversely affected by the takeover proceeding by a scheme of arrangement rather than by a takeover under Chapter 6" and further, if the Court accepted such implication then "the no objection statement may well effectively counter any adverse inference that might have been drawn from the existence of the proscribed purpose";[10]

(c) the existence of the purpose may be a factor for the Court to take into account in the exercise of its approval discretion but that "the existence of the no objection statement which allows the scheme to be considered for approval likewise may be a factor of equal or similar weight and would tend to establish that the existence of the proscribed purpose is not of particular significance in relation to the court's exercise of the discretion under sub-s 411(4)".[11]

32 In Re Lonsdale Financial Group Limited (No 2),[12] Robson J said (at [21]) that "...the court is neither compelled to take the purpose for which the scheme is proposed into account nor compelled to disregard that question. On the other hand, if the court does find the proscribed purpose exists then that finding may be relevant but will normally be of no particular significance in the light of ASIC's no objection statement."

Approval of a scheme of arrangement - exercise of discretion

33 It was submitted that this is a clear case in which the Court should exercise its discretion to approve each of the schemes. Relevant matters in this regard include the following:

(a) the attitude of the minority shareholders and rightsholders as reflected in the voting results of the meetings (see paragraphs 11 and 12 above);

(b) the opinion of the independent expert that the Share Scheme is in the best interests of minority shareholders (see Appendix 1 of the Explanatory Memorandum, particularly pages 190 to 192) and that the Rights Scheme is in the best interests of rightsholders (Appendix 1, page 195);

(d) the unanimous recommendation of the independent directors of AXA APH;

(e) considerations such as those referred to in pages 11-16 of the Explanatory Memorandum; and

34 In light of these matters, I accept the submission that the Court ought to be satisfied that the schemes are proposed in good faith and are "at least so far fair and reasonable that an intelligent and honest [person], who is a member of the class concerned, and acting alone in respect of [their] interests as such a member, might approve it"[13] and that it is accordingly appropriate that the Court exercise its jurisdiction to approve each of the schemes.

35 Section 411(11) of the Act requires, subject to s 411(12), that a copy of the Court's order approving a scheme of arrangement be annexed to every copy of the company's constitution issued after the order is made. Section 411(12) allows the Court to exempt a body from compliance with this provision or to determine the period during which it shall comply.

36 Exemption from the requirements of s 411(11) is a usual adjunct to orders approving schemes to effect mergers or acquisitions. It rarely attracts judicial analysis. However, in Re Hostworks Group Ltd (No 2),[14] Mansfield J articulated the following reasoning on the point:

"[35] Section 411(11) of the Act contemplates that a copy of the order made by the Court under s 411(4)(b) will be annexed to every copy of the constitution of Hostworks after the order has been made. However, s 411(12) provides that:

'The Court may, by order, exempt a body from compliance with subsection (11), or determine the period during which the body must comply with that subsection.'

[36] In Re Equinox Resources Ltd [2004] WASC 143; (2004) 49 ACSR 692, EM Heenan J at [22] indicated that the purpose of section 411(11) was:

'... to ensure that any modification of the rights of shareholders of the company which is the subject of the scheme, or any other provision in the scheme which may affect the interests of persons dealing with the company, such as prospective creditors or purchasers of shares, will be sure to have the opportunity of seeing what the exact rights of shareholders in the company or of its creditors are, as modified, if at all, by the scheme which has been approved.'

[37] His Honour there held that where the proposed scheme would not involved modification of any rights of shareholders, creditors, or of other persons dealing with the company, it would be an appropriate case for dispensation from the requirement to comply with s 411(11): see also Re Rocksoft Ltd [2006] FCA 1098 at [16].

[38] Upon implementation of the Scheme (as approved by the Court), Broadcast Australia will be the sole shareholder of Hostworks. The Scheme will not have involved modification to the rights of shareholders' or of creditors' entitlements, but simply involve a change in the shareholding of Hostworks and a cancellation of the options in Hostworks on issue at the time the Scheme was proposed. This also seems, therefore, an appropriate matter in which to order, pursuant to s 411(12) that Hostworks be exempt from complying with s 411(11) of the Act."

37 I accept the submissions that the approach taken by Mansfield J and in the cases which his Honour cites is correct, and ought to be applied to the schemes the subject of the present application.

38 For the preceding reasons, I am satisfied that this is an appropriate case for the exercise of the Court's discretion to make orders approving the schemes of arrangement as sought by AXA APH. For these reasons, I am also satisfied that there should be an exemption from the requirements of compliance with sub-s 411(11) of the Act.

39 Consequently, I made the following orders, as sought by the plaintiff:

(1) Pursuant to s 411(4) of the Corporation Act 2001 (Cth) ("the Act"), the scheme of arrangement between the Plaintiff and certain of its members agreed to by the said members at the meeting convened pursuant to the orders of the Honourable Justice Croft on 14 January 2011 and held on 2 March 2011 ("the Share Scheme Meeting"), a copy of which scheme is annexed to these Orders and marked "A" ("the Share Scheme"), be and is hereby approved.

(2) Pursuant to s 411(4) of the Act, the scheme of arrangement between the Plaintiff and certain of its creditors agreed to by the said creditors at the meetings convened pursuant to the orders of the Honour Justice Croft on 14 January 2011 and held on 2 March 2011 ("the Rights Scheme Meetings"), a copy of which scheme is annexed to these Orders and marked "B" ("the Rights Scheme"), be and is hereby approved.

(3) Pursuant to s 411(12) of the Act, the Plaintiff is exempted from compliance with section 411(11) of the Act in relation to the Orders at paragraphs 1 and 2 above.

(4) These Orders be drawn up by the solicitors for the Plaintiff and signed by a Judge.

[7] Exhibit JM-22 to the third affidavit of Joseph Muraca.

[13] Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 247, per Fry LJ.

[14] [2008] FCA 248, at [35] - [38].

Court (Corporations) Rules 2003

At a glance

Court

Decision date

Before

Source

Judgment (95 paragraphs)

Parties

Legislation Cited (8)