Cranswick Premium Wines Limited [2003] FCA 138

REASONS FOR JUDGMENT 1 On 23 December 2002, I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) ("the Act") for the convening of meetings of the shareholders, optionholders and noteholders of Cranswick Premium Wines Limited ("Cranswick") for the purpose of considering, and if thought fit, approving, with or without modification, schemes of arrangement for the merger of Cranswick (a public company) with another well known wine producer and distributor Evans & Tate Limited ("Evans & Tate") (also a public company). My reasons for judgment in relation to the making of those orders, and the text of the orders, are recorded in Cranswick Premium Wines Limited [2002] FCA 1624. 2 Pursuant to s 411(4) of the Act, the schemes were required to be approved by a 75% majority of shareholders, optionholders and noteholders of Cranswick respectively voting in person or by proxy at the scheme meetings for each of those classes. Each of those meetings were duly convened and held successively on 17 February 2003. The holding of the meetings was duly advertised in conformity with the Federal Court (Corporations) Rules 2000. 3 In the case of the shareholders' scheme meeting, shareholders both in number and in value voted by majorities exceeding 97% in favour of the shareholders' scheme of arrangement. If the shares held by Mr G Cranswick-Smith, the chief executive officer of Cranswick, were to be excluded, a majority vote of 97.94% of shareholders was still achieved. Pursuant to the shareholders' scheme, shareholders would stand to receive shares in Evans & Tate plus cash (see [3(i)] of my previous reasons for judgment). Also at the shareholders meeting a separate resolution to approve an amendment to the Employee Option Plan was passed by a majority of 92.59%. That course was foreshadowed in [19(f)] of my reasons for judgment of 23 December 2002. 4 In the case of the optionholders' scheme meeting, a 100% majority was achieved. As I mentioned in [5] of my reasons for judgment of 23 December 2002, there is authority for the proposition that it is more appropriate to characterise optionholders as creditors rather than shareholders. The effect of the optionholders' scheme is that each optionholder will, at his, her or its election, either receive cash, or, upon exercise of options, receive an issue of shares in Evans & Tate. 5 In the case of the noteholders' scheme meeting, the majority of noteholders approving the scheme of arrangement was 97.55%. Of those noteholders who are also shareholders, the approval rate was 96.91%, and of those noteholders who are not shareholders, the approval rate was 97.78%. Similar percentage results were achieved in relation to the resolution of noteholders to approve an amendment to the Convertible Note Trust Deed (see [19(g)] of my reasons for judgment of 23 December 2002), whereby the maturity date in relation to the convertible notes was altered to read the so-called "Conversion Date", or 29 October 2007, "and any earlier date on which the Note Issuer repays the Note". 6 Senior Counsel for Cranswick acknowledged the now well established principle that the Court is not bound to approve a scheme of arrangement, simply because it had previously made orders for the convening of meetings, and because subsequently the requisite majority of members and creditors had agreed thereto (Re Stockbridge Ltd (1993) 9 ACSR 637). In any event, he submitted that the Court should approach its present task on the basis that the members and creditors voting at their respective meetings are normally better equipped than the Court to resolve what constitutes their best commercial advantage (re Chevron (Sydney) Ltd [1963] VR 249). As has been demonstrated, the Cranswick shareholders and creditors have already spoken in virtual unison in favour of the schemes of arrangement and their implementation. 7 In my opinion, the relevant requirements of s 411 of the Act have been met. I have no reason to think otherwise than that the majority of shareholders, optionholders and noteholders have expressed their respective wishes in good faith, rather than in pursuit of some collateral purpose, and that the proposals are fair and reasonable, such that a hypothetical intelligent and honest shareholder, optionholder or noteholder, acting alone, might approve the same (see Re NRMA Ltd (No 2) (2000) 34 ACSR 261 at [5]). It is of course not a matter for the Court to determine whether the schemes are intrinsically in the interests of the shareholders, optionholders and noteholders, and the Court must leave to the creditors' commercial sense and judgment what is or is not in their best interests (Re Foundation Healthcare Ltd (No 2) (2002) 43 ACSR 680 at [31]). 8 My attention has been drawn specifically to the complaint of one noteholder, Millennium Capital Pty Ltd, concerning the valuation of the convertible notes communicated by Cranswick to its noteholders. There is no substance in that isolated complaint. As has been demonstrated in the evidence of the independent expert BDO Corporation Finance Pty Ltd, even if the Millennium assessment of value of each option is substituted for the value adopted in that independent export's report of 5 December 2002 tendered to the Court on the previous occasion, the resulting value of the noteholders' scheme consideration would still exceed by about 10 cents the value of the existing convertible notes. 9 In [10] of my reasons for judgment of 24 December 2002, I set out the initial favourable response of Australian Securities and Investment Commission ("ASIC") to the schemes of arrangement. ASIC has since formally stated, by letter dated 26 February 2003, that it has no objection to the respective schemes of arrangement between Cranswick and its shareholders, optionholders and noteholders, and in so doing, ASIC has expressed its satisfaction that the schemes have not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Act. ASIC explicitly took into account, in that regard, the supposed concerns of the noteholder Millennium Capital mentioned in [8] above. 10 In [16] of my reasons for judgment of 24 December 2002, I made reference to the intended execution by Evans & Tate of a deed poll in favour of Cranswick shareholders, optionholders and noteholders, pursuant to a so-called Implementation Deed entered into between Cranswick and Evans & Tate on 19 November 2002, being documentation rendered necessary by the circumstance that the schemes of arrangement are not of course binding upon any persons or entities other than Cranswick, its shareholders, optionholders and noteholders. Evidence was furnished at the scheme approval hearing to the effect that Cranswick and Evans & Tate have mutually agreed in writing not to terminate the Implementation Deed. 11 Finally, I should record that in conformity with the schemes of arrangement for the noteholders and optionholders respectively, and for the purpose of giving effect thereto, the Amending Option Deed between Evans & Tate and Cranswick in favour of the holders of options issued under the Cranswick Employee Option Plan, and the Amending Trust Deed between Cranswick, Permanent Nominees (Aust) Limited and Evans & Tate, were both duly executed on 26 February 2003, and those amending deeds were tendered in evidence in the proceedings. 12 I am of the opinion that the orders sought should be made, including the order as to dispensation with compliance with s 411(11) of the Act, an order which, as Cranswick has pointed out, is routinely made (see for instance re Challenge Bank Ltd (1995) 19 ACSR 421 at 423), a fortiori in the case of a scheme of arrangement involving a merger. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.