F T easement & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd

MARKOVIC J 1 On 7 November 2022 I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) convening a meeting of the members of WCM Global Long Short Limited (WLS) for the purpose of considering and, if thought fit, approving a proposed scheme of arrangement between WLS and its shareholders (Scheme) and orders pursuant to under s 1319 of the Corporations Act for the convening, holding and conduct of the meeting. These are my reasons for making those orders.

background 2 WLS is a public company limited by shares. It is admitted to the official list of the ASX Limited and its shares are quoted for trading on the stock market operated by ASX. 3 WLS is a listed investment company managed by Contango Funds Management Limited (Manager) that provides investors with access to a global long-short investment strategy implemented by WCM investment Management, LLC. WLS' objective is to seek long term capital appreciation by investing in a long-short portfolio of global equities. 4 WCM Quality Global Growth Fund (Quoted Managed Fund) (WCMQ) is a managed investment scheme registered with the Australian Securities and Investments Commission (ASIC) on 11 May 2018. AGP Investment Management Limited (formerly Associate Global Partners Limited) is the responsible entity for WCMQ (Responsible Entity). WCMQ invests in high conviction, actively managed global portfolio with the primary objective of providing long term capital growth. 5 On 29 April 2022 WLS entered into an implementation agreement (Implementation Deed) in respect of a proposed restructure by way of a scheme of arrangement and capital reduction (Original Restructure). On the same day WLS announced the Original Restructure and released a copy of the Implementation Deed via the ASX announcements platform. 6 On 13 October 2022 the Implementation Deed was amended and restated. Under the amended and restated Implementation Deed it was agreed that, instead of the Original Restructure, WLS would propose the Scheme pursuant to which it is intended that WLS will become wholly owned by WCMQ. 7 On 13 October 2022 WLS announced the Scheme and released a copy of the amended and restated Implementation Deed via the ASX announcements platform. 8 On 4 November 2022 further amendments were made to the amended and restated Implementation Deed to update the name of the Responsible Entity (which changed after execution of the Implementation Deed) and to remove an ability for the parties to the Implementation Deed to change key Scheme dates by agreement. 9 If the Scheme is implemented WLS shareholders, other than "Ineligible Shareholders", will be entitled to exchange their WLS shares for "New WCMQ Units". The number of New WCMQ Units to be issued to each shareholder as Scheme consideration is to be determined based on the post-tax net tangible asset (NTA) per WLS share and the net asset value (NAV) per WCMQ Unit on the Calculation Date which is the date that is two business days before the Implementation Date. 10 The calculation of the Scheme consideration is to be undertaken in accordance with the following formula: SC = (NTA/NAV) x WLS Shares Where: SC = the number of NEW WCMQ Units to be issued to each Scheme shareholder or the Nominee, in respect of all Ineligible Shareholders, rounded up or down in accordance with the Scheme; NTA = the post-tax NTA per WLS share on the "Calculation Date" calculated in accordance with the Scheme and adjusted for transaction related costs; NAV = the NAV per WCMQ Unit on the "Calculation Date" calculated by WCMQ's independent administrator in accordance with the WCMQ Constitution; and WLS Shares = the number of WLS shares held on the Record Date by a Scheme shareholder or, in respect of the Nominee, all Ineligible Shareholders. 11 On 4 November 2022 the WLS board approved the final version of the Scheme booklet, which included changes requested by ASIC after its review of the draft lodged with it.

Directors' recommendation 12 WLS' "Recommending Directors", Mark Kerr and Andrew Meakin, have unanimously recommended that WLS shareholders vote in favour of the Scheme at the proposed Scheme meeting. Martin Switzer, a non-executive director of WLS, does not make any recommendation as to how WLS shareholders should vote at the Scheme meeting given his involvement in the management of Contango Asset Management Limited and his indirect interests in the Manager and the Responsible Entity.

Independent expert's report 13 The Recommending Directors appointed Lonergan Edwards & Associates Limited to assess the Scheme. Lonergan Edwards prepared a report which is included at annexure A to the Scheme Booklet in which it has concluded that the Scheme is fair and reasonable.

Correspondence with ASIC 14 The draft Scheme Booklet was lodged with ASIC on 13 October 2022. Thereafter ASIC raised some matters in relation to the draft lodged with it including in relation to the calculation of the Scheme consideration. It is not necessary to set out that correspondence in any detail. 15 On 4 November 2022 ASIC issued a letter to WLS' lawyers in which ASIC noted that it had had a reasonable opportunity to examine the terms of the Scheme and the draft Scheme Booklet and to make submissions to the Court in relation to those matters. In its letter ASIC also noted that at the time WLS shareholders are asked to vote on the Scheme they will not know the exact Scheme consideration. In relation to that ASIC stated: Under the proposed scheme timetable, shareholders of the Company will be asked to vote on the Scheme 12 business days before the Calculation Date and the exact value of the scheme consideration will be announced, being no later than 29 December 2022. ASIC has been advised that there are commercial reasons for the proposed timing. However, consistent with ASIC's policy as set out in ASIC Regulatory Guide 60 at paragraph 60.96, ASIC is of the view that scheme proponents, including those voting by proxy, should be given at least ten days to consider any supplementary information before being required to vote on the scheme. ASIC does not currently propose to appear to make submissions or intervene to oppose the Scheme at the first court hearing under s411(1) of the Corporations Act. In this regard ASIC notes that: a) the basis on which the scheme consideration is calculated has been disclosed to shareholders and the Scheme Booklet includes an explanation of the Formula; b) the Scheme Booklet highlights the fact that the exact amount of the scheme consideration will not be known at the date of the scheme meeting as a risk; c) the Scheme Booklet includes worked examples of the scheme consideration that would be received on particular assumptions as to the relevant elements of the Formula; d) it is submitted to ASIC that there are commercial reasons for use of the Formula to determine scheme consideration and the timing of the scheme meeting and Calculation Date; and e) shareholders will receive via announcement on ASX on specified dates, including immediately prior to the last date for lodgement of proxies, estimates of the scheme consideration based on the Formula calculated as at the last day of the month prior to the date of the estimate. 16 ASIC reserved its position in relation to the issue of timing of the calculation of the Scheme consideration but noted that it may seek to address the matter further at the second court hearing. ASIC did not appear or intervene to oppose the Scheme at the first court hearing.

legal principles 17 There are three stages to an application under s 411 of the Corporations Act: (1) the Court approves the convening of a scheme meeting and approves the draft explanatory statement to be sent to scheme members; (2) the members vote on the proposed scheme at the scheme meeting; and (3) the Court approves the proposed scheme, see Re CSR Ltd (2010) 183 FCR 358 at [7] (per Keane CJ and Jacobson J). 18 At the first court hearing the "court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the … meeting the court would be likely to approve it on the hearing of a petition which is unopposed": see F T Easement & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 (per Street CJ with whom Hutley and Samuels JJA agreed). 19 In Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012 at [22] Gleeson J said the following about the jurisdiction exercised at the first court hearing: At the first court hearing the Court exercises its supervisory jurisdiction to review the scheme and the explanatory statement and raise any queries with the plaintiff. In Re Crusader Ltd [1996] 1 Qd R 117; (1995) 120 FLR 219, Thomas J said at 125 that "the courts are concerned with the notion of a fair picture being presented" and went on to embrace the observations of the Full Federal Court in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 468: If every possible formulation of the commercial objective of the proposal, and arguments for and against every theoretical possibility, were set forth the total package of information to members would be likely to confuse rather than illuminate the issue for decision, even for people having a familiarity with corporate law and commerce. The need to make full and fair disclosure must be tempered by the need to present a document that is intelligible to reasonable members of the class to whom it is directed, and is likely to assist rather than confuse. 20 At [19], her Honour set out the matters to be established at the first court hearing as follows: The following matters are required to be proved at the first stage (Re Orion Telecommunications Ltd [2007] FCA 1389 at [5]): (1) The plaintiff is a "Part 5.1 body"; (2) The proposed scheme is an "arrangement" within the meaning of s 411 of the Act. (3) The scheme booklet will provide proper disclosure to members; (4) The scheme is bona fide and properly proposed; (5) ASIC has had reasonable opportunity to examine the proposed scheme and explanatory statement, to make submissions and has had 14 days' notice of the proposed hearing date of the first court hearing; and (6) Any other procedural requirements have been met, such as rule 3.2 of the Federal Court (Corporations) Rules 2000 (Cth) as to the nomination of a chairperson for the scheme meeting. 21 At both the first and second court hearings there is a duty of disclosure which falls on the plaintiff and its counsel. As explained by Barrett J in Re Permanent Trustee Company Limited [2002] NSWSC 1177; 43 ACSR 601 at [7]: The fact that the application is ex parte is not without some significance. The absence of any defendant or contradictor sharpens the duty of the applicant. While a case such as the present is distinguishable from one where an interlocutory injunction is sought in the absence of a defendant (in that there is here no defendant as such) I think it is fair to say that an applicant in this kind of situation, like an applicant ex parte for an injunction, carries the responsibility of bringing to the court's attention all matters that could be considered relevant to the exercise of discretion.

consideration 22 Based on the evidence before me I was satisfied that: (1) WLS is a Part 5.1 Body under the Corporations Act. It is registered with ASIC and listed on the ASX; (2) the Scheme is an arrangement in respect of which the Court may order a meeting of members pursuant to s 411(1) of the Corporations Act; (3) ASIC has had a reasonable opportunity to examine the terms of the Scheme and the draft Scheme Booklet and to make submissions in relation to those matters; (4) the Scheme Booklet provides adequate disclosure and contains the prescribed information as required by the Corporations Act and the Corporations Regulations 2001 (Cth). Further, there has been a verification process undertaken in relation to the information contained in the draft Scheme Booklet; and (5) WLS had met the procedural requirements in the Federal Court (Corporations) Rules 2000 (Cth). 23 WLS brought a number of specific matters to my attention, which I address below.

Ineligible Shareholders 24 Ineligible Shareholders are defined in the Scheme to mean both "Ineligible Foreign Shareholders" and "Exiting Unmarketable Parcel Shareholders". In turn: (1) an Ineligible Foreign Shareholder is any WLS shareholder with a registered address on the Record Date that is outside Australia or New Zealand; and (2) an Exiting Unmarketable Parcel Shareholder is a Scheme shareholder with an unmarketable parcel of WLS shares on the Record Date, that is with a parcel of shares valued at $500 or less calculated by reference to the closing price for WLS shares on the ASX on the Effective Date, who does not opt in to the Scheme. 25 The now conventional approach for foreign shareholders is for their shares or, as in this case, units to be issued to a nominee. Those units once issued will be withdrawn off-market and the withdrawal proceeds will be paid to the foreign shareholders. That is what is proposed in the Scheme. No issue arises in relation to that proposal. 26 The same procedure is proposed for the Exiting Unmarketable Parcel Shareholders unless any of those shareholders opt in to the Scheme. They will be given an opportunity to do so by way of an Opt-in Notice to be provided to WLS shareholders in the disclosure materials prior to the Scheme meeting. That is, a WLS shareholder will only be an Exiting Unmarketable Parcel Shareholder if it does not provide the completed Opt-in Notice. This procedure is outlined in the Scheme and disclosed in the Scheme Booklet.

Provisions of the Scheme documents 27 WLS drew my attention to the terms of the Scheme which is at annexure B to the Scheme Booklet. 28 In particular WLS noted the following matters: (1) the Scheme is subject to the conditions precedent set out in cl 3.1, but subject to usual Court orders and those orders being lodged with ASIC. The conditions precedent need to be satisfied or waived two hours before commencement of the hearing on the second court date such that the Scheme will be self-executing upon the making of orders at the second court hearing and registration of those orders with ASIC; (2) the Responsible Entity is not a party to the Scheme. Thus an "outsider" needs to be bound in by contract. This is achieved by deed poll in favour of Scheme shareholders. A copy of the deed poll is at annexure C of the Scheme Booklet. It enables relevant Scheme shareholders to directly enforce the obligation to provide the Scheme consideration; and (3) the clauses of the Scheme concerning Ineligible Shareholders which deal with the procedures set out at [24]-[26] above.

Timing of the calculation of Scheme consideration 29 The method of calculation of the Scheme consideration is described at [9]-[10] above and in schedule 1 to the Scheme. 30 The Calculation Date of the Scheme consideration occurs after the second court hearing and two days before the Implementation Date. 31 WLS submitted that is now the conventional approach where two investment companies or entities are brought together. This is in contrast to acquisition schemes where the value of the scheme consideration is known to the shareholders before they vote. The same approach was adopted in the scheme considered by Halley J in Absolute Equity Performance Fund Ltd, in the matter of Absolute Equity Performance Fund Ltd [2022] FCA 933 (see [29]-[37]) and in those referred to at [38] of Absolute Equity. 32 WLS explained that the timing of the calculation date recognises the risk of adverse movements in the relative post-tax NTA value of WLS and NAV of WCMQ after the Calculation Date impacting the value of the Scheme consideration. WLS seeks to minimise this risk by limiting the time between the calculation of the Scheme consideration and the implementation of the Scheme. 33 Although Scheme shareholders will not know the exact number of New WCMQ Units they will receive until immediately before the Implementation Date, it is apparent that the Scheme provides certainty that the Scheme shareholders will each receive Scheme consideration with an aggregate post-tax NTA value on the Implementation Date that is close to the aggregate net asset value of the units issued as Scheme consideration. 34 WLS submitted that the Calculation Date occurring after the Scheme meeting and the second court date does not expose WLS shareholders to the risk of adverse (or positive) movements in WLS' NTA after the Scheme meeting because: (1) the timing of the Calculation Date is intended to mitigate this risk; (2) without the Scheme WLS shareholders would likely exit their investment in WLS via on market transfers which would be priced at a discount to the prevailing post-tax NTA, based on WLS' recent share price performance; and (3) therefore whether WLS' post-tax NTA increases or decreases, WLS shareholders are better off under the proposed Scheme. I accepted those submissions.

Liquidation of the WLS portfolio before the Scheme meeting 35 The final issue raised was that the WLS portfolio will be liquidated before the Scheme meeting. WLS explained that there were three reasons for this: (1) WCMQ, by reason of Sch 10A.3.3 of the ASX Operating Rules, is not permitted to hold investments in unlisted companies making it necessary to liquidate WLS' current portfolio which comprises a single investment in an unlisted fund, the WCM Fund; (2) to ensure compliance with the ASX Operating Rules, the Responsible Entity required liquidation of WLS' portfolio prior to the Calculation Date as a term of the Implementation Deed. This was agreed during negotiations between the parties; and (3) securities in the WCM Fund can only be redeemed at the end of each calendar month making liquidation between the Scheme meeting and implementation not possible without delaying implementation until next calendar year. 36 I accepted WLS' submission that this is a matter for disclosure and was satisfied that it is the subject of adequate disclosure in the Scheme Booklet.

conclusion 37 For those reasons I was satisfied that the Scheme is of such a nature and cast in such terms that, if it achieves the statutory majorities at the Scheme meeting, the Court would likely approve it. Accordingly, I made the orders sought by WLS at the first court hearing. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.