- F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd

Particular aspects of the schemes

Mr Jackman draws several aspects of the schemes to the Court's attention, consistent with the Court's expectations of the Court articulated by Barrett J in Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at 603; [2002] NSWSC 1177. First, he points out that the number of HDN units that will be issued as scheme consideration under the trust scheme will exceed HDN Trustee's 15% placement capacity under ASX Listing Rule 7.1 and that the exception for issues of securities as consideration under a scheme is not available, as the number of HDN units that will be issued will exceed 100% of the HDN units currently on issue. He notes that approval of unitholders in the HDN Trust ("Reverse Takeover Resolution") is required before the HDN units can be issued as scheme consideration to Aventus securityholders. The passage of such a resolution by the necessary majority of HDN Trust unitholders is a condition precedent to the schemes, and HDN Trustee will convene a meeting of HDN Trust unitholders to seek that approval on or about 24 January 2022. The need for that approval is disclosed in section 2.3.2 of the scheme booklet.
Second, Mr Jackman notes that the Proposed Home Consortium Restructure, if implemented, will result in Home Consortium comprising a single listed company, HCL, with only ordinary shares on issue and Home Consortium securityholders holding one ordinary share in HCL for every one stapled security that they held prior to the Proposed Home Consortium Restructure. I note that this restructure has, since the date of the first Court hearing in this matter, been approved by Home Consortium securityholders and by the Court at the second Court hearing and is proposed to be implemented by 24 December 2021. Section 11.4 of the scheme booklet draws these matters to the attention of Aventus securityholders, and discloses that, if that restructuring is implemented before the Effective Date of these schemes (expected to be 3 February 2022), Aventus securityholders who elect to receive HomeCo Scrip Consideration will receive fully paid ordinary shares in HCL which will be quoted for trading on ASX.
Third, Mr Jackman noted that Aventus had engaged an independent valuer to value its entire portfolio as at 31 December 2021, and expected to release a summary of the results of the valuation of its portfolio to ASX in late December 2021. This is disclosed in section 4.3 of the scheme booklet. Mr Jackman also noted that the HDN Trustee also intends to value the HDN Trust's entire portfolio as at 31 December 2021 and release to ASX a summary of the results of the valuation of its portfolio in late December 2021, and this is disclosed in section 5.2.1 of the scheme booklet. Following the release of the updated valuation, the Aventus boards will seek to obtain confirmation from Deloitte as to whether the updated valuation changes the conclusion expressed in the independent expert's report. This confirmation will be announced to ASX in advance of the scheme meetings and, if Deloitte's opinion has changed, Aventus will make supplementary disclosure, as necessary, and seek to have the matter relisted before the Court prior to the meetings. Mr Jackman submits, and I accept, that earlier cases have accepted this approach in respect of updating financial information: Re Andean Resources Ltd [2010] FCA 1190 at [26]; Re Talent2 International Ltd [2012] FCA 771 at [30] - [31]; Re Pulse Health Ltd [2017] NSWSC 140 at [28].
Fourth, Mr Jackman notes that Mr Holland and Lawrence Wong, the chief financial officer of Aventus, will be offered roles as the chief executive officer and chief financial officer respectively of the Merged HDN Group; several current directors of Aventus including Mr Holland will also be appointed to the HDN Trustee Board; and Mr Carter will remain on the HDN Trustee Board until December 2022 to facilitate a smooth transition. These arrangements are disclosed in the Letter from the Chairman of Aventus Group, Answers to Key Questions and elsewhere in the scheme booklet.
Fifth, Mr Holland will, if the schemes become effective, be entitled to receive HDN units and New HomeCo Securities with a value (determined as at the Last Practicable Date, as defined in the scheme booklet) of approximately $19.9 million in respect of his Aventus securities and Restricted Aventus Securities (as defined) and (as I noted above) will be offered a management position as Chief Executive Officer of the Merged HDN Group (as defined in the scheme booklet). The bulk of the securities received by Mr Holland relate to his existing Aventus securityholdings but some reflect the conversion of securities under incentive schemes. These interests are disclosed in sections 4.8 and 11.5 of the scheme booklet, and the letter from the Chairman of Aventus Group and sections 1.1 and 3.1 of the scheme booklet note that Aventus securityholders should have regard to these matters when considering Mr Holland's recommendation on the schemes.
Mr Jackman refers to the approach in the case law to the question whether it is appropriate for a director who will receive a cash payment in lieu of his or her incentive arrangements if a scheme becomes effective, to provide a recommendation in the scheme booklet, and refers to my decisions addressing this matter in Re Villa World Ltd [2019] NSWSC 1207; Re GBST Holdings Ltd [2019] NSWSC 1280; Re Windlab Ltd [2020] NSWSC 571, Re Coca-Cola Amatil Ltd [2021] NSWSC 270 and Re BINGO Industries Ltd [2021] NSWSC 798 and the decisions of Beach J in Re DWS Ltd [2020] FCA 1590 and Re RXP Services Ltd [2021] FCA 38 at [48] and of Perram J in Re Mainstream Group Holdings Ltd [2021] FCA 948 taking the same approach. I am satisfied that Mr Holland's interests arising from these matters are sufficiently disclosed in the scheme booklet and do not prevent him making a recommendation in respect of the schemes and that holders of Restricted Aventus Securities who are also Aventus securityholders are not in a separate class of Aventus securityholders: Re Cashcard Australia Ltd (2004) 48 ACSR 738; [2004] FCA 223; Re Foster's Group Ltd (No 2) [2011] VSC 547 at [38]-[43].
Sixth, Mr Jackman addresses the structure of the scheme consideration. He points out that all scheme securityholders (other than Ineligible Foreign Securityholders) will receive HDN units in exchange for their Aventus units pursuant to the trust scheme. The HomeCo Scrip Consideration will only be received by those scheme securityholders (other than Ineligible Foreign Securityholders) who elect to receive consideration in that form by validly completing an election form by a specified time. He also notes that the New HomeCo Securities to be issued as the HomeCo Scrip Consideration will comprise fully paid ordinary shares in HCL, where the Proposed Home Consortium Restructure is implemented before the effective date for the schemes. Mr Jackman submits and I accept that the structure of the scheme consideration is not a matter that would warrant the Court declining to convene the scheme meetings, where the scheme booklet contains detailed and prominent disclosure of the risks involved in investing in the HDN Trust and the risks involved in Aventus securityholders electing to invest in Home Consortium or HCL, including in the letter from the Chairman of Aventus Group and section 8 of the scheme booklet. Mr Jackman also addresses the treatment of Ineligible Foreign Securityholders (as defined) which is in common form.
Seventh, Mr Jackman addresses the question of reimbursement (or "break") fees payable by Aventus, Home Consortium and HDN Trustee under the schemes. The case law has accepted reimbursement (or "break") fees that are a genuine pre-estimate of the internal and external costs that would be incurred by an acquirer in respect of a scheme, including opportunity costs, and that are not payable if the shareholders did not vote in favour of the scheme and are unlikely to be a matter which could influence voting at the scheme meeting: Re Cytopia Ltd [2009] VSC 560; Re Webcentral Group Ltd [2020] NSWSC 1279 at [30]; Re Coca-Cola Amatil Ltd above at [24].
Clause 13.2 of the SID provides for ACL to pay a reimbursement fee of AUD $20.15 million (excluding GST) to HDN Trustee and AHL must pay a reimbursement fee of AUD $1.63 million (excluding GST) to Home Consortium in specified circumstances. Those fees are not triggered on the Court's declining to approve the schemes or Aventus securityholders failing to approve the schemes with the requisite majorities and are not a disincentive to Aventus securityholders in their consideration of the proposed unstapling or the schemes: Re Adelaide Bank Ltd [2007] FCA 1582 at [31]. Mr Selim addresses the components of the out of pocket and opportunity costs of HDN Trustee and Home Consortium that support the amount of the reimbursement fees in his affidavits, to which I referred above. Clause 14.2 of the SID in turn provides that HDN Trustee must pay to ACL a reverse reimbursement fee of $20.15 million (excluding GST) and Home Consortium must pay to AHL a reverse reimbursement fee of $1.63 million (excluding GST) in specified circumstances.
These reimbursement fees are approximately 1.00% of the equity value of Aventus based on the implied value of the scheme consideration of $3.82 per Aventus security and the 570,729,306 Aventus securities on issue as at 18 October 2021, which is in line with the guideline figure indicated by the Takeovers Panel in their Guidance Note 7: Lock-up devices.
Mr Jackman points out that cl 14.9 of the SID also provides that, if the HDN meeting is held and the Reverse Takeover Resolution is not approved by the required majority of HDN unitholders or HDN unitholders fail to approve the Reverse Takeover Resolution by 8 May 2022, and unless the reverse reimbursement fees are payable (as set out above), then HDN Trustee must reimburse Aventus for all external costs and expenses actually incurred and payable by any member of the Aventus Group to a third party up to the date of the HDN meeting or the date that is 5 Business Days before the End Date (as applicable) in relation to the transaction, up to a maximum of $5 million. Mr Jackman points out that this cost reimbursement is payable to Aventus, rather than by Aventus, and is not detrimental or coercive to Aventus securityholders in their consideration of the unstapling and schemes. I accept that it is not in the nature of a "naked no vote" break fee payable by a scheme company to the acquirer (rather than by the acquirer to the scheme company) which was disapproved in Re Bolnisi Gold NL (No 2) (2007) 243 ALR 545; 65 ACSR 510; [2007] FCA 2078. This fee seems to me to be a genuine reimbursement of wasted costs, and is paid in narrower circumstances than the reverse break fee that was accepted in Re Afterpay Ltd [2021] NSWSC 1435, which was payable, inter alia, on the bidder's failure to obtain shareholder approval for the transaction. The maximum reimbursement on this basis is well below 1% of the equity value of Aventus based on the implied value of the scheme consideration.
Eighth, Mr Jackman notes that cl 11.2 of the SID imposes "no talk", "no shop" and "no due diligence" obligations, and the "no talk" and "no due diligence" obligations are subject to a fiduciary exception as set out in cl 11.3 of the SID. Mr Jackman refers to my observation in Re TPG Telecom Ltd [2020] NSWSC 772 at [22] that: "the Court will be concerned to ensure that any exclusivity period should be for no more than a reasonable period capable of precise ascertainment; an exclusivity clause directed at dealing with an unsolicited alternative merger proposal should be subject to a fiduciary carve out; and the provisions must be clearly disclosed in the explanatory statement sent to shareholders."
Mr Jackman also points out that the exclusivity period is defined in the SID and capable of precise ascertainment, and continues from 18 October 2021, the date of the SID, until the earlier of specified events, including an End Date of 15 May 2022, or such other later date as agreed in writing by the parties. I accept that this is a reasonable period and is shorter than exclusivity periods in some other schemes that have previously been accepted by the Court: Re Tatts Group Ltd [2017] VSC 552 at [36]-[39]; Re Tawana Resources NL [2018] FCA 1456 at [32]; Re Vocus Group Ltd [2021] NSWSC 630 at [16]-[17]. As I noted above, the "no talk" and "no due diligence" restrictions are subject to a fiduciary exception and the exclusivity provisions are clearly disclosed in the scheme booklet. I accept that similar provisions have been accepted in the case law including Re TPG Telecom Ltd above at [22] and Re Windlab Ltd above at [18].
Ninth, Mr Jackman notes that neither Home Consortium nor HDN Trustee nor their related bodies corporate is an Aventus securityholder. However, section 11.3 of the scheme booklet discloses that Home Consortium has a relevant interest in 34,243,758 Aventus securities, representing 6% of the Aventus securities on issue and HDN Trustee has voting power referrable to those Aventus securities. That relevant interest arises from the put and call option agreement entered between Home Consortium and BBRC on 18 October 2021 in relation to 34,243,758 Aventus securities, which I noted above.
Mr Jackman submits that the BBRC Option Agreement should not prevent BBRC voting all of the Aventus securities it holds at the scheme record date for the company scheme in the same class as other Aventus securityholders. The case law indicates that, without more, option arrangements entered into by a scheme securityholder and an acquirer over securities held by a scheme securityholder do not create a separate class: Re MAC Services Group Ltd [2010] NSWSC 1316; Re Bigair Group Ltd [2016] FCA at [17]-[19]). Mr Jackman rightly recognises that, if Home Consortium exercises the call option to purchase Sale Securities (as defined) under the BBRC Option Agreement, the cash amount payable to BBRC will be determined as a function of the volume weighted average price (VWAP) of HDN units and HomeCo securities in a specified period and, if the value of HDN units or HomeCo securities changes during that period, that amount may differ from the implied offer price of $3.82 under the schemes. He submits, and on balance I accept, that the rights of BBRC are not sufficiently differently affected by the schemes such as to make it impossible for BBRC and other scheme securityholders to consider the company scheme as one class, and a similar result was reached in Re Aston Resources Ltd [2012] FCA 229. That approach seems to me to be consistent with not requiring a separate class where rights of securityholders are not so differently affected by the scheme as to make it impossible for securityholders to consider the scheme as one class: First Pacific Capital Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; Huon Aquaculture Group Ltd [2021] FCA 1170.
Tenth, Mr Jackman points out that, having regard to the uncertainty and potential health risks associated with large gatherings during the COVID-19 pandemic, Aventus securityholders and their authorised proxies, attorneys and corporate representatives will have the option to attend the meetings in person or online. That approach is permitted by rule 8.3(d) of AHL's constitution and rule 16.8 of AHL's Constitution and cl 20.8(b) of the ARPF Trust Deed permit meetings of unitholders of ARPF to be held in conjunction with meetings of shareholders of AHL, while Aventus units are stapled to Aventus shares, and permit the Aventus boards to make such rules for the conduct of such meetings as the Aventus boards determine. Virtual meetings are now commonplace in company and trust schemes, and give rise to no reason not to approve the schemes for the reasons noted in Re Vocus Group Ltd above at [21]. The procedures for voting and participation in the meetings are disclosed in the scheme booklet.
Eleventh, Mr Jackman addresses performance risk. He notes that scheme participants' ability to enforce their entitlements under a scheme is relevant to the Court's discretion whether to convene the scheme meeting and approve the scheme, and a similar consideration can arise in a trust scheme where a third party provides the consideration: Re SFE Corporation Ltd [2006] FCA 670 at [4]; Re APN News & Media Ltd (2007) 62 ACSR 400 at 405; [2007] FCA 770; Re Sydney Airport Holdings Ltd above at [17]; Re Mirvac Funds Management Ltd [2014] NSWSC 1569 at [7]; Re Villa World Ltd above at [22]. He refers to my observation in Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [29] that a practice has developed to address performance risk, by which the transfer of target shares to an acquirer is conditional on the payment of the consideration to target shareholders, and there are numerous cases which have endorsed that practice. He submits and I accept that that practice has been followed in these schemes and that sufficiently addresses performance risk in respect of the cash and scrip consideration. Each of Home Consortium and HDN Trustee have also executed a deed poll in favour of scheme securityholders.
Twelfth, Mr Jackman points out that cl 6.1(b) of the trust scheme provides that each scheme securityholder is taken to have given warranties to ARPF and HDN Trustee including that, on the Implementation Date (as defined), all their Aventus units are free from encumbrances and interests of third parties of any kind. Clause 9.2(b) of the company scheme provides corresponding warranties to AHL and Home Consortium in respect of Aventus shares. The case law has recognised the legitimacy of deemed warranty provisions, provided that appropriate disclosure is made, since their purpose and effect is to ensure that a scheme participant whose shares are subject to an encumbrance is not unfairly advantaged: Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26]; Re Villa World Ltd above at [25], Re Windlab Ltd above at [21]. The deemed warranties given by scheme securityholders are here disclosed at section 11.1.8 of the scheme booklet.
Thirteenth, Mr Jackman notes that s 411(17) of the Act provides that the Court must not approve a scheme unless satisfied it is not proposed for the purpose of enabling avoidance of the takeovers provisions in Chapter 6 of the Act or ASIC provides a statement that it has no objection. I accept that this matter is properly deferred to the second court hearing: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [23]-[31]; Re Ellerston Global Investments Limited above at [25].
Finally, Mr Jackman addresses the means by which scheme documents will be sent to Aventus securityholders, which gives rise to no reason not to approve the schemes.

At a glance

Court

Decision date

Before

Source

Judgment (9 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (57)