- Devereaux Holdings Pty Ltd v Pelsart Resources NL

Judgment - EX TEMPORE 1By my judgment delivered on 16 October 2013 ([2013] NSWSC 1680) I made orders for the plaintiff, The Trust Company Limited, ("TCL"), to convene a meeting of members to consider and vote on a proposed scheme of arrangement for the purposes of s 411 of the Corporations Act 2001 (Cth). In a further judgment delivered on 19 October 2013, I made orders approving the dispatch of supplementary material to TCL's shareholders, in circumstances that a competing takeover bidder, Equity Trustees, had increased the price offered by a takeover bid for shares in TCL and TCL proposed to release a Fourth Supplementary Target's Statement to Australian Securities Exchange Limited and to send it to its shareholders prior to the scheme meeting. TCL now seeks orders that the scheme of arrangement between TCL and its shareholders be approved. 2TCL relies, first, on the affidavit of Mr Robert Bruce Corlett, an independent non-executive director of TCL and the chairman of its board, who was also the chairman of the scheme meeting and gives evidence of the conduct of the scheme meeting and voting at that meeting. Mr Corlett's evidence establishes that the scheme resolution was approved by the requisite majority of shareholders. 3Second, TCL relies on the affidavit of its group company secretary, Mr Geoffrey Stirton, sworn 2 December 2013, to establish that the scheme booklet, as approved at the first Court hearing, with immaterial corrections, was printed and dispatched to TCL's shareholders. Mr Stirton exhibits a form 530, signed as contemplated by reg 5.6.13 of the Corporations Regulations 2001 (Cth); that regulation provides that a statement by a person acting on behalf of TCL, as the entity convening the meeting, that notice of the meeting was sent by prepaid post is, in the absence of evidence to the contrary, sufficient proof of the notice having been sent to the relevant person at the address specified in that notice. Mr Stirton's evidence also establishes that this hearing has been advertised in accordance with the Supreme Court (Corporations) Rules 1999 (NSW). 4Third, TCL relies on the affidavit of Mr David Dickson sworn 2 December 2013. Mr Dickson is a relationship manager with Computershare Investor Services Pty Limited ("Computershare") and gives evidence as to the preparation and dispatch of scheme documents, including the explanatory memorandum, in two tranches and the dispatch of supplementary disclosure documents on 20 November 2013. Mr Dickson also draws attention, properly, to one occasion on which it appears that additional documents were incorrectly included in a mailing pack sent to a shareholder; to the investigations subsequently undertaken in respect of that issue, to the absence of notifications by other shareholders of any similar issue arising; and to Computershare's confidence, which seems to me to be reasonably justified on the evidence, that this error was an isolated one. Mr Dickson also draws attention to occasions on which replacement information was sent to TCL's shareholders at their request, which does not seem to me to cause any difficulty. 5Mr Dickson also gives evidence as to the processing of proxy forms, the use of intermediary online voting by custodians, and the conduct of the scheme meeting and votes at the meeting. In particular, Mr Dickson's affidavit annexes a report of votes at the scheme meeting, calculated on various bases. That annexure indicates, and TCL properly acknowledges in submissions, that the voting percentage achieved at the scheme meeting, namely that 78.42 percent of the votes cast were in favour of the motion and 83.41 percent of the number of holders who voted supported the motion would be affected by the fact that 1.36 percent of TCL's shares are held by TCL or its related parties or managed by those entities under discretionary mandates or portfolio management platforms, and were voted in favour of the scheme. However, Mr Dickson's evidence also demonstrates that the statutory majorities would have been satisfied even if those shares were not counted in determining the number of shares voted in favour of the resolution. 6There is also evidence that Perpetual, which is to acquire the shares under the scheme, offered to pay a broker handling fee in respect of valid proxy forms received from shareholders. That fee may have encouraged brokers to facilitate shareholder participation in the vote; however, as the Takeovers Panel recognises in Guidance Note 13, Broker Handling Fees, that would be a desirable outcome so far as it facilitates shareholder participation and encouraged an informed market. The amount of the fee paid by Perpetual is consistent with the guidance set out in paragraph 8 of that Guidance Note, and also appears to be consistent with the fee payable in similar circumstances in a scheme approved by the Court in Re Macquarie Communications Infrastructure Group [2009] NSWSC 487. Importantly, the evidence makes clear that that fee was payable regardless of whether a proxy was directed for or against the scheme or to abstain and therefore would not operate to favour one exercise of shareholders' votes over another. For all these reasons, it does not seem to me that the payment of a broker handling fee, in a manner consistent with Takeovers Panel Guidance Note 13, provides any reason not to approve the scheme. In any event, even if, contrary to my view, a difficulty had arisen in that regard, there is evidence that the relevant statutory majorities would also have been satisfied if the votes of shares in respect of which a broker handling fee was payable were disregarded. 7Mr Dickson's affidavit also gives evidence as to the percentage of votes and persons participating in the scheme meeting. A large number of the shares participated in the meeting and there was substantial support for the scheme indicated by the voting percentages: compare Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7]. 8Fourth, TCL relies on the third affidavit of Mr David Eliakim affirmed 2 December 2013 to establish that a copy of the scheme booklet, incorporating minor amendments from that considered at the first hearing, which do not give rise to any concern, was lodged with and registered by the Australian Securities and Investment Commission ("ASIC") after the first hearing. Mr Eliakim's affidavit also annexes a Fourth Supplementary Target's Statement and covering letter to TCL shareholders, which had been sent to those shareholders after the earlier hearing in which I had approved the despatch of certain material to shareholders. No changes had been made to the text of the Supplementary Target's Statement after that hearing, other than administrative changes such as the removal of the square brackets and no difficulty arises in that regard. 9A difficulty has, however, arisen in respect of amendments made to the covering letter sent to TCL's shareholders after the Court hearing on 19 November 2013 approved the despatch of an earlier, different, version of that letter. In the event, I have concluded, for reasons that I will set out below, that this matter is not sufficient to withhold approval of the scheme. Nonetheless, I should pause to comment upon it, because it gives rise to difficulties that are matters of concern and in other circumstances might have adversely affected the exercise of the Court's discretion whether to approve the scheme. 10The form of the covering letter that had been approved by the Court on 19 November 2013 contained a neutral reference to the fact that a Fourth Supplementary Bidder's Statement detailing the revised Equity Trustees' offer would be sent to TCL shareholders by the competing bidder, Equity Trustees, shortly. The covering letter that was subsequently sent to the TCL shareholders deleted that statement, admittedly in circumstances that the Fourth Supplementary Bidder's Statement had been lodged with ASIC on the day before the Court hearing, and inserted a further statement in bold print which read: "Please DISREGARD all correspondence from Equity Trustees in relation to the revised Equity Trustees' offer, including the pre-filled proxy form provided by Equity Trustees." 11Mr Oakes, who appears with Mr Thomas for TCL, contends that that statement was directed to a concern by TCL that the issue of a pre-completed proxy form, presumably voting against the approval of the scheme, by Equity Trustees may have caused confusion to TCL's shareholders. There may be some force in that concern, since the issue of a pre completed proxy form by Equity Trustees might be confused for a proxy form issued by TCL and there might have been reason for TCL to draw shareholders' attention to that matter and to emphasise that, if they wished to support the scheme, then they should not complete the pre-filled proxy form provided by Equity Trustees. 12However, there seem to me to be significant difficulties with the different course which was adopted by TCL. The first is that the reason for seeking the Court's approval for the despatch of material to securityholders, in the course of a scheme, is that the form of documents approved by the Court "should not be interfered with by unilateral supplementation by the company": Re Coates Hire Ltd (No 2) [2007] FCA 2105 at [6]; Re Centro Retail Ltd & Centro MCS Manager Ltd (in its capacity as responsible entity of Centro Retail Trust) [2011] NSWSC 1321 at [11]. That outcome would not be achieved if approval was sought for correspondence in one form and correspondence with material changes made was then despatched to securityholders. The despatch of a letter to TCL's shareholders in the present form, after orders had been entered by the Court approving the despatch of the earlier form of the letter and were publicly available, also had a real capacity to create misunderstanding as to what form of letter had been approved by the Court. 13There also seems to me to be a difficulty with the use of the language "disregard all correspondence from Equity Trustees." That form of language encouraged TCL's shareholders not to inform themselves as to information which might be sent to them by Equity Trustees in respect of a competing bid to the scheme. That approach was at least potentially inconsistent with the importance that Australian case law has placed upon the provision of adequate information to shareholders, which would not be facilitated by discouraging shareholders from having regard to information which may be sent by a party propounding a competing proposal: compare Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956; ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270; (2007) 61 ACSR 626. It may be that this was no more than an unfortunate choice of language. Even if that is the case, it emphasises the desirability for Court approval of such correspondence, because this matter could have been agitated before the Court had that language been included in the form of letter that had been put before the Court for approval. This aspect of communication with shareholders in respect of the scheme seems to me to have been unfortunate. I will return to that matter in exercising the Court's discretion whether to approve the scheme below. 14TCL also relies on affidavits of Mr Philip Podzebenko dated 29 November 2013 and Mr Alexander Morris dated 3 December 2013. Mr Podzebenko provides information as to the arrangements in respect of the broker handling fees, to which I have referred above, and arrangements in respect of the sale facility which dealt with the sale of foreign shareholders shares. Mr Morris' affidavit deals with the fact that TCL had not been advised of any appearances to oppose the scheme by this morning; and with notice received by TCL from ASIC under s 411(17) of the Corporations Act that ASIC had no objection to the scheme for the purposes of that section. There is also evidence of satisfaction of conditions precedent to the scheme and the necessary regulatory consents in respect of the scheme. 15Turning now to the principles applicable to the approval of the scheme at the second scheme hearing, Mr Oakes, and Mr Thomas provide a helpful summary of the relevant criteria, which include that the orders of the Court convening a meeting of members were complied with; that the meeting of members so convened has approved the scheme with the requisite majorities; that all other statutory requirements have been satisfied; that the scheme is fair and reasonable, in the sense that an intelligent and honest person who was a member of the relevant class, properly informed and acted alone might approve it; that the plaintiff has brought to the Court's attention all matters that could be considered relevant to the exercise of its discretion; and that full and fair disclosure to members or creditors of all information material to the decision whether to vote for or against the applicable scheme; see, for example, Re Seven Network (No 3) [2010] FCA 400 at [35]-[39]; (2010) 77 ACSR 701; Re Centro Properties Ltd [2011] NSWSC 1465 at [34]-[37]; (2011) 86 ACSR 584. It is, of course, well established that the Court will recognise that properly informed securityholders are best judges of their own commercial interests and will give substantial weight to their views expressed at a scheme meeting. The Court will also have regard to the adequacy of the disclosure made to the security holders and whether the proposed arrangement is contrary to public policy: Re Seven Network above at [38]-[40]; Re Centro Properties Ltd above at [38]-[44]. 16Putting aside the issue to which I referred above in respect of the covering letter sent to shareholders with the Fourth Supplementary Target's Statement, the orders of the Court convening the scheme meeting were complied with and, in particular, the scheme booklet was despatched to the members in the form approved by the Court, with immaterial amendments. I have ultimately concluded that the issue to which I referred above, in respect of the letter sent to shareholders with the Fourth Supplementary Target's Statement does not, in itself, warrant declining to approve the scheme. A substantial amount of information concerning Equity Trustees' bid was in the marketplace, including its own Fourth Supplementary Bidder's Statement and the content of the expert's report previously released by TCL to ASX and contained in its Fourth Supplementary Target's Statement. The reasoning underlying the view of TCL's board that Perpetual's proposal reflected in the scheme was superior to that of Equity Trustees was also exposed to shareholders in the Fourth Supplementary Target's Statement and the supplementary independent expert's report, which expressed the view that the scheme was fair and reasonable and in the best interests of TCL's shareholder notwithstanding the increase in the Equity Trustees' offer. 17I have formed the view that the shareholders have been adequately informed as to the exercise of their judgment, notwithstanding the matter noted in paragraphs 10-13 above, and I should give significant weight to their commercial judgment as to the scheme expressed by the votes cast at the meeting to which I have referred above. The statutory majority for approval for the scheme was satisfied, even if shares voted in favour of the scheme by TCL and shares as to which broker handling fees were payable were disregarded. 18ASIC has indicated that it has no objection to the scheme for the purposes of s 411(17)(b) of the Corporations Act. ASIC's statement that it does not object to a scheme pursuant to that paragraph avoids the need for the court to consider whether to withhold approval of the scheme on the ground that it could have proceeded as a takeover under Ch 6 under s 411(17)(a), although that matter may still be relevant to the exercise of the court's wider discretion whether to approve the scheme: Re Coles 'Group Ltd (No 2) [2007] VSC 523; (2007) 65 ACSR 494 at [48]ff. The implementation of a merger by scheme, in order to provide certainty of outcome, will generally not offend s 411(17): Re ACM Gold Ltd & Mt Leyshon Gold Mines Ltd (1992) 7 ACSR 231; (1992) 34 FCR 530; Re Stockbridge Ltd (1993) 9 ACSR 637 at 652-653; (1993) 11 ACLC 201. There does not seem to me to be any reason to decline approval of the scheme by reason of that section. 19TCL also seeks an order that it be exempted from compliance with s 411(11) of the Corporations Act which would otherwise require that a copy of the Court's order approving the scheme be annexed to every copy of TCL's constitution issued after the order has been made. TCL points out, and I accept, that such an order is commonly made whereas, in this case, the rights of the shareholders arising out of the company's constitution are not modified by the scheme: Re Equinox Resources Ltd [2004] WASC 143; (2004) 49 ACSR 692 at [22]. 20For all these reasons, I make orders in accordance with the short minutes of order, initialled by me and placed with the file, which include an order that these orders be entered forthwith.