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[2019] FCA 346
plaintiff. Orders made under s 411(1) convening a scheme meeting of ordinary shareholders (excluding certain lost, disclosure-restricted and email shareholders) to be held on 2 May 2019, with directions as to...
Amcor wanted to merge with US packaging firm Bemis by creating a new parent company in Jersey. Australian shareholders would get tradeable interests (CDIs) in the new company listed on the ASX, or could elect shares listed in New York. Foreign shareholders in excluded jurisdictions would have their interests sold and receive cash. Justice Beach ruled that these foreign shareholders did not need their own separate meeting because they shared the same overall interest in the deal. He confirmed that a legal promise (Deed Poll) from the new company, backed by Jersey law advice, removed any risk that shareholders would not get their new interests. The judge also found the break fee, exclusivity rules and employee bonus plans were normal, fairly disclosed and did not make the deal unfair. The detailed booklet explained everything clearly, an independent expert said it was in shareholders' best interests, and ASIC had no objections. Therefore the judge ordered a shareholder vote.
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Amcor Limited, an Australian packaging company listed on the ASX, entered into a Transaction Agreement on 6 August 2018 with Bemis Company, Inc, a US-listed entity, to combine their businesses under a newly incorporated Jersey company called New Amcor. New Amcor would obtain a primary listing on the NYSE and a foreign exempt listing on the ASX through CHESS Depository Interests (CDIs). Under the scheme of arrangement, all ordinary shares in Amcor would be transferred to New Amcor. In return, scheme shareholders (other than ineligible foreign shareholders) would receive one New Amcor CDI per Amcor share, representing a beneficial interest in one underlying New Amcor share. Shareholders could elect to receive New Amcor shares listed on the NYSE instead, subject to New Amcor's discretion. Bemis would simultaneously merge into a wholly-owned subsidiary of New Amcor under Missouri law, with Bemis shareholders receiving 5.1 New Amcor shares per Bemis share. The transactions were inter-conditional.
At the first court hearing on 12 March 2019, Amcor sought orders under s 411(1) of the Corporations Act 2001 (Cth) to convene a single meeting of its ordinary shareholders on 2 May 2019. Beach J granted the orders the same day and published reasons on 13 March 2019. Bemis appeared as an interested person under r 2.13 of the Federal Court (Corporations) Rules 2000 (Cth) and supported the application. ASIC had been given 14 days' notice, reviewed the draft scheme booklet, and indicated it did not intend to appear at the first hearing, although it raised a query concerning the temporal limit of the fiduciary carve-out in the exclusivity provisions.
Several mechanical features required detailed explanation to the Court. These included the nature of CDIs (explained at [23]-[32]), the multi-layered holding structure involving CHESS Depositary Nominees Pty Ltd (CDN), Cede & Co and the Depository Trust Company, the treatment of ineligible foreign shareholders via a sale agent mechanism ([39]-[44]), and the Deed Poll executed by New Amcor on 25 February 2019 together with a Jersey law opinion from Ogier confirming enforceability ([18]). The draft scheme booklet contained a comprehensive independent expert report from KPMG Corporate Finance opining that the transaction was in the best interests of Amcor shareholders. All Amcor directors unanimously recommended the scheme and intended to vote their shares in favour.
Specific commercial terms examined included a US$130 million termination fee ([58]-[70]), exclusivity and no-shop restrictions with fiduciary carve-outs ([71]-[82]), deemed warranties by shareholders as to clear title ([55]-[57]), and the impact on Amcor's employee incentive plans ([83]-[86]). Beach J was satisfied that the booklet met the disclosure requirements of s 412 and Sch 8 to the Corporations Regulations 2001 (Cth), had been thoroughly verified by both Amcor and Bemis due diligence processes, and that no feature rendered the scheme so blatantly unfair that it should be stopped before the meeting.
Beach J's reasoning followed the conventional two-stage supervisory approach at the first hearing. First, he confirmed that the jurisdictional prerequisites in s 411(1) were satisfied: a compromise or arrangement was proposed, the application was made summarily by the company, ASIC had received at least 14 days' notice, and ASIC had had a reasonable opportunity to examine the terms and draft explanatory statement ([45]-[46]). Compliance with the Federal Court (Corporations) Rules and Insolvency Practice Rules was also addressed, with dispensation granted from certain procedural rules.
The substantive discretionary analysis then asked two questions: whether the scheme was fit for consideration by the meeting in the sense that, if it achieved the statutory majorities, the Court would be likely to approve it at the second hearing; and whether shareholders would be properly informed ([48]-[90]). On the first limb, his Honour applied the test from Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [44], asking whether the scheme appeared on its face "so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further" ([47]). He concluded it was not.
Central to this was the treatment of ineligible foreign shareholders. Citing Re Hills Motorway Ltd (2002) 43 ACSR 101 at [12] and Re CSR Ltd (2003) 45 ACSR 34 at [5], Beach J held that the test is community of interest, not identical treatment. Although these shareholders would have their notional CDIs sold by a nominee and receive net proceeds rather than securities, they obtained the same economic value and shared the same interest in whether the overall transaction should proceed. Therefore they could consult together with other shareholders in a common interest ([41]-[44]). The First Pacific Advisors LLC v Boart Longyear Ltd (2017) 320 FLR 78 reasoning at [77]-[81] was cited with approval on this point.
Performance risk was eliminated because New Amcor had executed a Deed Poll binding it to provide the scheme consideration, supported by expert Jersey law evidence going beyond mere corporate capacity to questions of enforceability, choice of law, and recognition of Australian judgments ([17]-[18], [53]-[54]). This satisfied the requirement that third-party obligations be secured and enforceable.
The termination fee of less than 1% of Amcor's equity value was the product of commercial negotiation and fell within Takeovers Panel Guidance Note 7 parameters. It was not payable merely upon shareholders rejecting the scheme and would not coerce voting ([58]-[70]). Exclusivity provisions were likewise conventional (Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [50]; In the matter of Toll Holdings Ltd [2015] VSC 123 at [36]). The fiduciary carve-out, which operated until shareholder approval, was appropriate; ASIC's suggestion that it should continue until implementation was deferred to the second hearing, as any post-approval superior proposal could be considered then and the directors' overriding duties could not be contracted out of in any event ([77]-[81]).
Employee incentive arrangements did not create a separate class. Adopting Robson J's analysis in Re Skilled Group Ltd (No 1) at [82], Beach J noted that rights would not vest until after the meeting, the additional securities would be of the same type, and the employees were in no different position from any other employee whose interests might be affected by the transaction ([84]-[86]).
On disclosure, the Court was satisfied that the booklet explained the effect of the scheme, directors' interests, prescribed information under reg 5.1.01 and Sch 8, and all material information known to directors ([91]). Verification processes for both Amcor and Bemis information (the latter relying on SEC filings and internal controls) were thorough ([107]-[111]). ASIC's review and the independent expert report further supported adequacy. Consequently the scheme was fit for consideration and shareholders would be properly informed, leading to the orders convening the meeting.
Prior to this judgment the law on class composition in schemes involving scrip consideration and ineligible foreign shareholders was settled by authorities such as Re Hills Motorway Ltd (2002) 43 ACSR 101 and Re CSR Ltd (2003) 45 ACSR 34. Barrett J had emphasised that the test is community of interest, not identical treatment. The present judgment applies that principle squarely to a CDI structure and confirms that a sale-agent mechanism for ineligible foreign shareholders does not fracture the class, citing the same authorities at [42]-[44] and adding First Pacific Advisors LLC v Boart Longyear Ltd (2017) 320 FLR 78. The law was not changed; rather, it was confirmed that the principle extends comfortably to modern cross-border merger structures using CDIs.
On performance risk, the requirement for a Deed Poll from a foreign holding company, supported by foreign law opinion going beyond ss 128-129 assumptions, was already orthodox but received detailed treatment at [17]-[18] and [53]-[54]. The judgment reinforces that enforceability under the law of incorporation (here Jersey) must be positively established when the entity is not a "company" within the Corporations Act.
Break fees and exclusivity had been considered in Re APN News & Media Ltd (2007) 62 ACSR 400 and Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525. Beach J confirmed that a fee below the 1% Takeovers Panel guideline, with triggers limited to change of recommendation or successful competing proposal, does not preclude convening. The discussion of fiduciary carve-outs at [76]-[81] clarifies that contractual temporal limits do not override directors' fiduciary and statutory duties, a point that was implicit in earlier cases but now expressly stated.
Disclosure obligations under s 412, the role of independent expert reports (not mandatory here), and verification processes were also conventional. The judgment illustrates their application to a complex cross-border transaction involving both Australian CDI mechanics and US DTC holding structures. After the judgment, practitioners could be more confident that CDI structures, layered depository arrangements, and sale facilities for ineligible foreign shareholders will not trigger separate class meetings provided community of interest is maintained. The deferral of ASIC's carve-out concern to the second hearing also crystallised a sensible division of issues between the two hearings.
At [42] Beach J quoted Barrett J: "The test is….not one of identical treatment. It is one of community of interest." In plain English this means that even if some shareholders get cash from a sale instead of shares, they still share the same big-picture interest in whether the whole merger should happen. Therefore they vote in one meeting.
Paragraph [47] adopts the test from Re Foundation Healthcare Ltd: a scheme should be stopped before the meeting only if it is "so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further." This sets a deliberately high bar at the first hearing; the Court does not finally decide fairness but asks whether the proposal is obviously doomed.
The discussion of CDIs at [23]-[32] contains a detailed exposition drawn from ASX Guidance Note 5. The key practical translation appears at [27(f)]: a CDI holder receives all economic benefits "to the same extent they would have if they held the underlying securities directly" and can convert to legal title if desired. This explains why CDIs are treated as economically equivalent for scheme purposes.
On the termination fee, [67] notes that the fee "represents less than 1% of the total equity value of Amcor having regard to the value of the bid consideration at the time of the announcement." Beach J translates the Takeovers Panel guideline into the present facts, confirming that size, commercial negotiation and limited triggers prevent it from being coercive.
At [80] the obiter statement is important: "the Amcor directors may have over-riding statutory and fiduciary duties in any event which cannot be contracted out of and do not cease to exist whatever the Transaction Agreement stipulates as a temporal limitation." In plain English, no contract can stop directors from doing what the law requires them to do if a better deal appears.
Paragraph [85], adopting Robson J's language from Skilled Group, states that employee incentive holders "are in no different position from any other employee of the company who would be impacted by the scheme's implementation in different ways on the basis of various interests extraneous to their status as members." This makes clear that only interests as members matter for class composition.
This precedent is triggered whenever a listed Australian company proposes a members' scheme of arrangement that involves scrip consideration issued by a foreign holding company, particularly where CDIs are used to enable ASX trading. The core trigger is the presence of ineligible foreign shareholders who cannot receive securities directly for legal or regulatory reasons and are instead routed through a sale agent. Provided the sale delivers equivalent economic value, no separate class meeting is required.
A second trigger is the use of a Deed Poll by a non-Australian entity (here a Jersey company) coupled with expert foreign law evidence on enforceability. Any scheme in which the ultimate issuer of consideration is not the scheme company itself will engage the performance-risk analysis at [53]-[54].
The judgment is also engaged by merger implementation agreements containing termination fees below 1% of equity value, no-shop and exclusivity restrictions with fiduciary carve-outs that operate at least until shareholder approval, and employee incentive plans that may deliver additional securities post-meeting. Where these features are commercially negotiated, clearly disclosed, and do not alter the consideration received by incentive-holding shareholders, they will not prevent convening.
The disclosure analysis applies to any scheme booklet that must satisfy s 412, reg 5.1.01 and Sch 8, especially those involving cross-border elements, layered custody arrangements (CDN, DTC, Cede & Co), and verification processes that rely in part on foreign regulatory filings. Finally, the judgment is relevant where ASIC raises a concern about the temporal operation of a fiduciary carve-out; the Court will ordinarily defer such matters to the second hearing once shareholder approval is known.
The source judgment itself demonstrates respectful treatment of earlier authority. It follows Re Hills Motorway Ltd and Re CSR Ltd on the community-of-interest test for classes ([42]-[44]), cites First Pacific Advisors LLC v Boart Longyear Ltd with approval on the same point, applies Re APN News & Media Ltd and Toll Holdings on break fees, and expressly adopts Robson J's Skilled Group reasoning on employee incentives at [85]. Beach J also aligns with the approach in Re Foundation Healthcare Ltd for the first-hearing threshold test.
Because the present reasons were delivered in March 2019, the text itself cannot address subsequent treatment. However, the judgment's careful exposition of CDI mechanics by reference to ASX Guidance Note 5 and CHESS Operating Rules has become a standard reference point for practitioners structuring Australian legs of global mergers. Its confirmation that verification of Bemis information could rely on SEC filings and Sarbanes-Oxley style controls without replicating an Australian board due-diligence committee has assisted later schemes involving US counterparties. The express statement at [80] that contractual limits on fiduciary carve-outs cannot override directors' duties has been influential in negotiations over the precise wording of "fiduciary out" clauses. Overall the decision illustrates the flexibility of the s 411 jurisdiction to accommodate modern international merger structures while maintaining strict supervisory standards on disclosure and fairness.
Several questions are left for future cases. First, the precise point at which a fiduciary carve-out should cease was not finally determined. ASIC contended it should continue until implementation because the scheme process does not end at the meeting and unforeseen events could arise before the second hearing. Beach J deferred the issue, noting that any actual superior proposal emerging in the short window between 2 May and 7 May 2019 could be brought to the Court's attention at the approval hearing ([78]-[81]). Whether a carve-out that ends at shareholder approval is always sufficient, or whether post-approval but pre-implementation fiduciary obligations could still require directors to bring a superior proposal to the second hearing, remains fact-sensitive and unresolved.
Second, the judgment assumes that the multi-layered CDI holding chain (New Amcor issuing shares to Computershare as custodian for CDN via Cede & Co) functions without difficulty ([29], [31]). While the Court was satisfied on the evidence, a future case involving actual voting or dividend flow-through problems under Jersey or US law could test the robustness of these arrangements.
Third, the interaction between the s 3(a)(10) US securities exemption and the Australian court's fairness hearing is noted at [118]-[119] but not ruled upon. The booklet disclosed the intended reliance on the exemption, and the point was to be raised again at the second hearing. The exact degree of "fairness hearing" required by US regulators when the Australian court has not formally approved the explanatory statement (following the Ixla Ltd approach at [114]) may require further elucidation.
Finally, the treatment of "lost shareholders" and "disclosure restricted shareholders" in China was approved on the particular facts, including substitute letters and website access ([94]-[102]). Whether similar practical dispensation would be granted in jurisdictions with more significant shareholdings or different regulatory prohibitions remains open. The judgment provides a useful template but does not lay down a universal rule. These open questions illustrate that while the first-hearing supervisory role is relatively settled, novel cross-border features will continue to require careful evidence and incremental judicial development at both hearings.
A. The Court notes that the Australian Securities and Investments Commission (ASIC) was provided with at least 14 days' notice of the hearing of this application. B. The Court is satisfied that ASIC has had a reasonable opportunity to: (a) examine the terms of the proposed scheme of arrangement to which the application relates and a draft explanatory statement relating to that arrangement; and (b) to make submissions to the Court in relation to the proposed scheme of arrangement and the draft explanatory statement. C. The Court notes the letter from ASIC to the Directors of Amcor Limited dated 11 March 2019 produced at the hearing.
Notice of hearing to approve compromise or arrangement TO all the members of Amcor Limited (ACN 000 017 372) (Amcor) TAKE NOTICE that at 9.30 am on 7 May 2019 the Federal Court of Australia (Victorian Registry) at 305 William Street Melbourne VIC 3000 will hear an application by Amcor seeking the approval of a compromise or arrangement between Amcor and its members if agreed to by a resolution to be considered, and, if thought fit, passed at a meeting of such members to be held on 2 May 2019 at Clarendon Auditorium, Melbourne Convention and Exhibition Centre, 1 Convention Centre Place, South Wharf, Victoria, commencing at 1.30 pm (Melbourne time). If you wish to oppose the approval of the compromise or arrangement, you must file and serve on Amcor a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Amcor at its address for service by 5.00 pm on 6 May 2019. The address for service of Amcor is: c/o Herbert Smith Freehills, Level 43, 101 Collins Street, Melbourne VIC 3000 [Ref: Ruth Overington/Nicholas Guenther]. ANNEXURE B Scheme
[The order entered is available on the Commonwealth Courts Portal, which attaches the Scheme]
BEACH J: 1 The plaintiff (Amcor) has applied for orders under s 411(1) of the Corporations Act 2001 (Cth) for the convening of a meeting of Amcor shareholders to consider a proposed scheme of arrangement (the Scheme). I granted such orders yesterday and these are my reasons for doing so. 2 Amcor is a packaging company producing packaging products such as flexible packaging, rigid containers, specialty cartons and closures. It is an Australian public company limited by shares. It is admitted to the official list of the Australian Securities Exchange (ASX), and its shares are quoted for trading on the stock market conducted by the ASX. 3 On 6 August 2018, Amcor entered into an agreement with Bemis Company, Inc (Bemis), a company incorporated in Missouri, USA, to combine the businesses operated by Amcor and Bemis (the Transaction Agreement). The Scheme is a component of the transaction to effect that combination. Bemis is a supplier of flexible and rigid plastic packaging used by leading food, consumer products, healthcare and other companies worldwide. Its headquarters are in Neenah, Wisconsin, and it is listed on the New York Stock Exchange (NYSE). As at 2 August 2018, the last trading day on the NYSE prior to media speculation in relation to its transaction with Amcor, Bemis had a market capitalisation of approximately US$4.2 billion. As at 3 August 2018, the last trading day on the ASX prior to market speculation in relation to its transaction with Bemis, Amcor had a market capitalisation of approximately US$13.1 billion. 4 I granted leave for Bemis to be heard, without becoming a party to the proceeding, as an interested person under rule 2.13 of the Federal Court (Corporations) Rules 2000 (Cth). Bemis generally supports the position of Amcor. Nevertheless it has raised some additional matters which I will discuss later. 5 The Transaction Agreement provides that Amcor is to put the Scheme to its shareholders which will provide for the transfer of all Amcor shares to a newly incorporated holding company, Amcor plc (New Amcor). New Amcor is incorporated in the Bailiwick of Jersey and will have a primary listing on the NYSE and a foreign exempt listing on the ASX via CHESS Depository Interests. 6 In consideration for the transfer of their Amcor shares to New Amcor, Amcor shareholders at the Scheme Record Date (Scheme Shareholders), except for ineligible foreign shareholders, will receive for each Amcor share held (the Scheme Consideration) either: (a) a beneficial interest in one share in New Amcor represented by one New Amcor CHESS Depository Interest (New Amcor CDI), which will be listed on the ASX; or (b) upon request, New Amcor Shares instead of New Amcor CDIs, which New Amcor Shares will be listed on the NYSE, although there is a discretionary component to this latter option which is of little moment given the optionality that a holder of a New Amcor CDI will later have to convert any New Amcor CDI into a New Amcor share. 7 The Transaction Agreement also provides for Bemis to be acquired by New Amcor. This is to occur in an all stock combination by way of a merger of Bemis into a wholly-owned subsidiary of New Amcor (Arctic Corp). The mechanics of Bemis becoming a wholly owned subsidiary of New Amcor involve a merger in the sense that Arctic Corp (a wholly-owned subsidiary of New Amcor) will merge with Bemis (the Bemis Merger), and each Arctic Corp share (which are all owned by New Amcor) will automatically convert into one Bemis share and such shares will constitute the only outstanding shares of Bemis, all of which will be held by New Amcor. The merger of Bemis will occur under the law of Missouri, USA. As part of this merger, Bemis shareholders, other than the holders of certain excluded treasury shares, will in effect exchange each Bemis share held for 5.1 shares in New Amcor, subject to approval by Bemis shareholders. Bemis shareholder approval requires the affirmative vote of at least 66.66% of the outstanding Bemis shares entitled to vote on the approval of the Transaction Agreement at a Bemis special meeting. 8 Now the Scheme and the Bemis Merger are inter-conditional in two respects. First, it is a condition precedent to the Scheme that the Transaction Agreement is approved by Bemis shareholders at the Bemis special meeting, which is scheduled to take place shortly after the Amcor Scheme meeting. Second, the obligations of Arctic Corp and Bemis to effect the Bemis Merger are subject to the Scheme having been put into effect although I should note that if I approve of the Scheme at the second Court hearing all relevant conditions precedent will then have been satisfied with only certain administrative steps to be then undertaken by those parties. 9 As a result of the Scheme and the Bemis Merger: (a) each of Amcor and Bemis will be a direct, wholly-owned subsidiary of New Amcor; (b) the former Amcor shareholders and Bemis shareholders will become holders of New Amcor CDIs or New Amcor Shares; and (c) former Amcor shareholders will hold, on present projections, approximately 71% of New Amcor with former Bemis shareholders holding approximately 29%. 10 The draft Scheme Booklet which includes the explanatory statement required by s 412 has been reviewed by ASIC who has provided a letter mostly in the usual form indicating that based upon its examination of the terms of the Scheme and the draft Scheme Booklet, it did not intend to appear to make submissions or intervene to oppose the Scheme at this stage. Accordingly it did not appear on this first hearing. There is however one matter which ASIC raised in its letter concerning the fiduciary "carve out" relating to the exclusivity provisions of the Transaction Agreement that I discussed with counsel for Amcor and with counsel for Bemis. I will return to this later. 11 The directors of Amcor have unanimously recommended that Amcor shareholders vote to approve the Scheme. In addition, all directors have expressly stated that they intend to vote their shares in favour of the Scheme. 12 Further, in the independent expert's report, KPMG Corporate Finance has expressed the view that the transaction comprised by the Scheme and the Bemis Merger is in the best interests of Amcor shareholders. 13 In my view the Scheme, if considered and adopted by the members of Amcor, is of such a nature that in the absence of any opposition it would likely be approved by me at the second Court hearing. Accordingly, I made orders yesterday convening the meeting for the following reasons. 14 Let me turn first to the mechanics of the Scheme, and then I will discuss the question of power and discretion under s 411(1).
SCHEME MECHANISM 15 The essential mechanism of the Scheme is as follows: (a) A meeting of Amcor shareholders is to be convened and to be held on 2 May 2019 to consider the Scheme. (b) If the Scheme is to proceed, all conditions precedent other than Court approval must be either satisfied or waived on the date on which the application for approval comes before me, which is to occur on 7 May 2019. (c) If the Scheme is agreed to by shareholders and approved by me, it will become effective on 8 May 2019, being the date of the lodging of an office copy of my approval order with ASIC. (d) If the Scheme becomes effective, then on or around 15 May 2019 (the Implementation Date): (i) New Amcor must provide the Scheme Consideration to the Scheme Shareholders, with the Scheme Consideration to be provided in the form of New Amcor CDIs, alternatively New Amcor Shares instead if requested by a Scheme Shareholder(s) and approved by New Amcor; and (ii) subject to the provision of the Scheme Consideration, all Amcor shares held by the Scheme Shareholders (Scheme Shares) are then to be transferred to New Amcor and Amcor will then enter the name of New Amcor in the Amcor Share Register in respect of the Scheme Shares. 16 As I have indicated, as an alternative to Scheme Shareholders being provided with New Amcor CDIs, New Amcor may arrange for a Scheme Shareholder to receive their Scheme Consideration in the form of New Amcor Shares. The Scheme Shareholder must make a valid request by completing and returning an election form by 5:00 pm on the relevant date. As I say, if a valid request is received, the provision of New Amcor Shares rather than New Amcor CDIs is at the discretion of New Amcor. 17 Now whilst the Scheme Consideration is to be provided by New Amcor, New Amcor is not a party to the Scheme and accordingly cannot be directly bound by it. So it has been necessary for New Amcor to execute a Deed Poll in favour of Scheme Shareholders. Indeed this is reflected in the Transaction Agreement, under which New Amcor agreed to execute a relevant Deed Poll prior to yesterday's hearing. 18 I have been provided with a copy of the Deed Poll executed by New Amcor on 25 February 2019. It binds New Amcor in favour of Scheme Shareholders to provide or procure the provision of the Scheme Consideration in accordance with the terms of the Scheme, and to undertake all other actions attributed to it under the Scheme. Further, as New Amcor is a foreign corporation incorporated in Jersey, Amcor also obtained and put before me an opinion from Mr Simon Dinning of the law firm Ogier in Jersey as to the proper execution and enforceability of the Deed Poll in Jersey. There is a need for such evidence in the present case to ensure that the Deed Poll is enforceable if only for the reason that the foreign entity entering into the Deed Poll is not a "company" within the meaning of the Corporations Act, and therefore the assumptions contemplated in ss 128 and 129 do not apply. But in the present case other matters also needed to be verified dealing with the enforceability of New Amcor's obligations under Jersey law, the recognition by Jersey of the express choice of governing law provision, the absence of any immunity, the enforceability of any judgment given in Australia by the Courts of Jersey and the like. In other words the necessity for such evidence of foreign law travels beyond questions of corporate existence, capacity, authority and due execution. 19 Let me now say something further on the two types of Scheme Consideration.
(a) New Amcor CDIs 20 As I have indicated, unless they request otherwise or they are an ineligible foreign shareholder, Scheme Shareholders will receive all their Scheme Consideration in the form of New Amcor CDIs, which are tradeable on the ASX. Each New Amcor CDI will represent one New Amcor Share, and will confer a beneficial interest in that New Amcor Share. New Amcor CDIs can be traded on the ASX during Australian business hours using Australian brokers and in Australian dollars in a similar way to existing Amcor shares. Contrastingly, the alternative Scheme Consideration being New Amcor Shares will only be able to be traded on the NYSE. 21 The nature of the New Amcor CDIs is explained in detail in the draft Scheme Booklet, as are the differences between holding a New Amcor CDI and holding a New Amcor Share directly. The main difference is that the former confers beneficial ownership instead of the legal title which accompanies share ownership. Other differences flow from this main difference, such as the impact on the right to vote directly at shareholder meetings, which is an incident of legal title to shares. But notwithstanding the differences, a New Amcor CDI will have rights that are economically equivalent to the rights attaching to New Amcor Shares. For example, New Amcor CDIs will be quoted and traded on ASX in Australian dollars, and the holders of New Amcor CDIs will be entitled to any declared dividend, and can direct how the shares represented by such instruments are to be voted at any shareholder meeting. 22 Contrastingly, as I have said, shareholders may request to receive their Scheme Consideration in the form of New Amcor Shares instead of New Amcor CDIs, or if they receive New Amcor CDIs as Scheme Consideration they may convert their New Amcor CDIs into New Amcor Shares listed on NYSE by contacting the New Amcor Share Registry. 23 Let me elaborate further on CHESS Depository Instruments (CDIs) 24 CDIs are used when the underlying securities such as the securities of most foreign corporations are not able to be settled through the ASX electronic clearing house system known as CHESS. In relation to the securities of most foreign corporations, CHESS cannot be used for holding legal title to securities. A solution to this problem is for the foreign company to issue ASX-listed CDIs. CDIs represent a beneficial interest in the underlying security of the foreign company. Nevertheless, when CDIs are quoted on the ASX, it is the underlying securities that are regarded as having been quoted on ASX; the Listing Rules provide that, with one exception, a reference to "quoted securities" or to securities being quoted by the ASX includes, where CDIs have been issued over an entity's securities, the securities over which the CDIs have been issued. 25 Now as I have indicated, CDIs can be traded on the ASX and settled electronically through CHESS (Clearing House Electronic Subregister System). Accordingly, by such a mechanism ASX-listed CDIs enable interests in foreign securities to be traded on the ASX. 26 With some modification to voting arrangements and with the exception of some corporate actions of foreign issuers domiciled in certain jurisdictions, a CDI holder has the same rights as holders whose financial products are legally registered in their own name. In particular, all economic benefits such as dividends, bonus issues, rights issues, interest payments and maturity payments or similar corporate actions flow through to the CDI holder as if they were the legal owner of the corresponding financial product. 27 There is a detailed explanation in ASX Guidance Note 5 ("CHESS Depository Interests") of the nature and purpose of ASX-listed CDIs by reference to relevant provisions of the ASX Listing Rules and the ASX Settlement Operating Rules. Relevantly for present purposes, it notes the following: (a) ordinarily, securities quoted on the ASX must be approved for participation in the CHESS electronic clearance and settlement facility, and the entity whose shares are quoted on the ASX must be approved as an issuer under the operating rules of the CHESS facility; (b) however, where an entity is established in a place overseas whose laws have the effect that CHESS cannot be used for holding legal title to its securities, it must instead have CDIs issued over its ASX-quoted securities, and establish a CHESS register and an issuer sponsored sub register in those CDIs; (c) CDIs were accordingly developed by the ASX to facilitate the clearing and settlement of transactions in securities through CHESS where the issuing entity is domiciled in a country whose laws do not recognise uncertificated holdings or electronic transfer of title; (d) CDIs are able to be held in uncertificated form and transferred electronically via CHESS even when the underlying securities themselves are not able to be so held and transferred; (e) a CDI effectively represents a unit of beneficial ownership in an underlying security that is held on trust for the CDI holder by a depository nominee; and (f) under the operating rules for the CHESS facility, all of the economic benefits attaching to the underlying securities accrue to the holder of the CDI; a CDI holder receives those economic and other benefits to the same extent they would have if they held the underlying securities directly; for example, an entity that has issued CDIs over underlying securities is obliged to pay any dividend declared in respect of the underlying securities directly to the holders of the CDIs; the holder also has the right to request the depository nominee to convert (or "transmute") the CDI into the underlying security at any time so that they become the legal owner of the security and become directly entitled to receive the economic benefits of ownership if and when they wish to. 28 In terms of the role of the depository nominee: (a) generally speaking, the underlying securities represented by a CDI must be registered in the name of the depository nominee as legal owner; (b) currently, the only depository nominee offering CDI services for ASX quoted securities is CHESS Depositary [sic] Nominees Pty Ltd (CDN), which is a wholly owned subsidiary of ASX Limited established specifically to fulfil the functions of a depository nominee in the CHESS settlement system; and (c) the depository nominee holds all right, title and interest in the securities vested in it subject to the right of the holder of a CDI to receive all direct economic benefits and any other entitlements in relation to those securities. 29 Accordingly, if the Scheme is implemented, the Scheme Shareholders' interests in the New Amcor Shares underlying the New Amcor CDIs are to be held by CDN. In fact the structure is a little more complicated. Cede & Co as nominee for Depository Trust Company Inc will be the registered holder of the New Amcor Shares who will in turn hold these on behalf of CDN who will in turn hold them on behalf of the holders of New Amcor CDIs. But I do not need to linger on this. 30 Now all of this impacts upon the exercise of voting rights attached to the New Amcor Shares represented by the holders' New Amcor CDIs. In particular, and as I have indicated, the holders of New Amcor CDIs are not the direct holders of the underlying securities represented by the New Amcor CDIs. And it will be CDN who is generally entitled to vote the underlying securities. Accordingly, holders of New Amcor CDIs will not be automatically entitled to exercise the votes attaching to the New Amcor Shares represented by the holders' New Amcor CDIs in person at a general meeting of New Amcor's shareholders. Now the process which will apply in this respect is explained in the draft Scheme Booklet, including the obligation of New Amcor to provide notice of meeting to the holders of New Amcor CDIs, and the right of the holders of New Amcor CDIs to direct CDN to have votes cast in a particular manner on their behalf, or to require CDN to appoint the holder or a person nominated by the holder as proxy to exercise the votes attaching to the New Amcor Shares represented by the holder's New Amcor CDIs. Moreover, these matters are provided for in the CHESS operating rules. The relevant provisions are designed to ensure that CDI holders, as a group, can exercise the same voting rights that they would otherwise be entitled to exercise as a group if they held the underlying securities. Further, ASX's Financial Services Guide titled "CHESS: Understanding CHESS Deposit[o]ry Interests" explains (p 5): In relation to meetings of a foreign issuer, you will be given notice of any meeting of a class of holders applicable to you. The notice must include a form permitting you to direct the deposit[o]ry nominee to cast proxy votes in accordance with your written directions. Unless the laws of the jurisdiction in which the foreign issuer is established permit it, you cannot vote personally at a meeting of holders. If you wish to vote personally, you must first convert your CDIs into the underlying foreign financial products in sufficient time before the meeting to enable you to vote personally. 31 Finally on the question of New Amcor CDIs, let me say something about issuing. Pursuant to the Scheme, the obligation of New Amcor to provide the Scheme Consideration in the form of New Amcor CDIs will be satisfied by New Amcor: (a) issuing to Computershare Trust Co (the New Amcor Registry) as custodian for ultimately CDN (via Cede & Co) that number of New Amcor Shares as will enable CDN to issue one New Amcor CDI for each Scheme Share held by a Scheme Shareholder; (b) procuring that on the Implementation Date, CDN issues to each Scheme Shareholder the correct number of New Amcor CDIs; and (c) procuring that on the Implementation Date, the name of each Scheme Shareholder is entered in the records maintained by CDN as the holder of the New Amcor CDIs issued to that Scheme Shareholder on the Implementation Date. 32 Notwithstanding the apparent complexity of these arrangements, I see no difficulty with them for Scheme Shareholders and they have been adequately explained in the draft Scheme Booklet.
(b) New Amcor Shares 33 Where the Scheme Consideration is in the form of New Amcor Shares, those shares are to be held on behalf of the New Amcor shareholders by a US depository trust company. Specifically, the obligation of New Amcor to provide the Scheme Consideration in such a form will be satisfied by New Amcor: (a) issuing the New Amcor Shares to the New Amcor Registry (as transfer agent) on the Implementation Date; (b) procuring that from the Implementation Date (New York time), the New Amcor Registry transfers the relevant New Amcor Shares to Cede & Co (as nominee for Depository Trust Company Inc (DTC)) and DTC credits the book entry interests representing those New Amcor Shares to the relevant DTC participant; and (c) procuring that the name and address of Cede & Co is entered into the New Amcor Share register in respect of the New Amcor Shares and that an electronic confirmation (or equivalent document) in the name of Cede & Co representing those New Amcor Shares is sent to Cede & Co. 34 Although no evidence was led before me on this topic I am prepared to take judicial notice of the following matters concerning the mechanism involving the operations and services of DTC, which are well known. 35 DTC is a limited purpose trust company providing safekeeping or custody of securities by means of the electronic recordkeeping of securities balances and acts as a clearing house. As has been pointed out, DTC operates the principal securities depository in the US and the majority of publicly traded shares in the US are subject to its operations. In relation to eligible securities, DTC through its nominee Cede & Co is the registered holder of the securities. It processes dividend payments and manages electronic book-entry transfers among DTC participants. DTC participants are financial institutions, brokers and the like who hold and transfer interests in securities at the direction of their underlying customers, including the ultimate beneficial owners; such participants hold securities accounts with DTC. 36 An investor can hold shares in three ways, being: (a) street name; (b) direct registration; or (c) physical certificate. 37 Relevantly to the present context, if the street name mechanism is used, the investor's name is listed in the broker's books as the beneficial owner of the shares. The broker's name (the broker being a DTC participant) in turn is listed in DTC's ownership records with respect to the shares. DTC's nominee, Cede & Co is listed as the registered owner of the shares on the records of the issuer maintained by its transfer agent; the share register of an issuer is usually kept and maintained by a transfer agent. DTC holds legal title to the securities in the name of Cede & Co as nominee, but the investor is the beneficial owner. 38 In relation to securities in which DTC holds the legal title, under New York law DTC is obliged to pass the beneficial rights of ownership including dividends, capital returns and voting rights to DTC participants (financial institutions, brokers etc.) who in turn pass them through to the ultimate investors. It is not necessary to explain the mechanism further or how voting rights are passed through.
(c) Ineligible Foreign Shareholders 39 An Amcor shareholder will be what is defined in the Scheme as "an Ineligible Foreign Shareholder" if their address as shown in the Amcor Register on the Scheme Record Date (proposed to be 10 May 2019) is in a jurisdiction other than Australia (or its external territories), Argentina, The Bahamas, Belgium, Canada, France, Germany, Hong Kong, India, Ireland, Malaysia, New Zealand, Singapore, South Africa, Spain, Switzerland, Thailand, the UK or the US, and who Amcor determines it would be unlawful, unduly onerous or unduly impracticable to issue the Scheme Consideration to in the relevant jurisdiction. 40 Ineligible Foreign Shareholders will not be able to receive New Amcor CDIs or New Amcor Shares under the Scheme. Instead, New Amcor will: (a) on the Implementation Date, issue such CDIs which would otherwise be required to be issued to the Ineligible Foreign Shareholders under the Scheme to a sale agent; (b) procure that as soon as reasonably practicable, and in any event not more than 15 business days after the Implementation Date, the sale agent sells on market all of the CDIs issued to the sale agent; and (c) account to each Ineligible Foreign Shareholder for the proceeds of the sale of all of the CDIs after deduction of any applicable brokerage, stamp duty and other costs, taxes and charges. 41 In my view this proposed treatment of Ineligible Foreign Shareholders under the Scheme accords with common practice adopted in schemes of arrangement where scrip comprises or is a component of the proposed scheme consideration. Moreover, the issuing to a sale agent under a scheme of arrangement of scrip that would otherwise have been issued to ineligible foreign shareholders does not require those shareholders to meet together as a separate class for the purposes of considering the proposed scheme of arrangement. 42 In Re CSR Ltd (2003) 45 ACSR 34 at [5], Conti J considered, in the context of a demerger scheme, whether a similar sale facility mechanism gave rise to class issues and concluded that it did not: I observe that the course described…above would not produce the consequence that separate classes of shareholders are thereby relevantly affected by or involved in the scheme. As pointed out by Barrett J in Re Hills Motorway Ltd (2002) 43 ACSR 101 at [12], after citation of longstanding United Kingdom authority, "[t]he test is….not one of identical treatment. It is one of community of interest". There would be here involved a sufficient measure of community interest, in relation to those CSR shareholders who stand to receive RGL shares in specie pursuant to the capital reduction and the demerger dividend, and that small segment of overseas CSR shareholders who would receive instead the proceeds of sale effected at market value of the same number of RGL shares, as would correspond to the respective numbers of CSR shares they would continue to hold after the demerger. 43 Similarly in Re Foster's Group Limited [2011] VSC 93, Ferguson J concluded (at [18] and [19]) that: …there is still community of interest between the ineligible overseas shareholders and the other shareholders in considering whether it is in their collective interests for the wine business to be demerged from the balance of Foster's business. In those circumstances, although there is differential treatment in respect of this very small percentage of Foster's shareholders, there is no separate class for the purposes of the proposed scheme. I also note that the treatment of the ineligible overseas shareholders under the proposed scheme is comparable to that of ineligible overseas shareholders the subject of the demerger in each of Re CSR Ltd (2003) 45 ACSR 34 and Re Orica Limited [2010] VSC 231. The overseas shareholders were not treated as a separate class in those cases. 44 Accordingly, in the present case, no separate class issue arises as regards the Ineligible Foreign Shareholders. There may not be identical treatment but there is nevertheless a community of interest. Clearly the relevant difference of treatment in the present case does not destroy the ability for the Ineligible Foreign Shareholders and the other Scheme Shareholders to "consult together in a common interest" (Re Hills Motorway Ltd (2002) 43 ACSR 101 at [12] per Barrett J and First Pacific Advisors LLC v Boart Longyear Ltd (2017) 320 FLR 78 at [77] to [81] per Bathurst CJ). All are receiving the same value, albeit in different form, but such differentiation in its formal effect does not destroy that commonality.
POWER AND DISCRETION 45 Section 411(1) confers a discretion on the Court to make an order if certain requirements are satisfied, namely: (a) a compromise or arrangement is proposed between a Part 5.1 body and its members (or any class of them); (b) application for the order is made in a summary way by the body; (c) 14 days' notice of the hearing of the application has been given to ASIC (or such lesser period as the Court or ASIC permits); and (d) the Court is satisfied that ASIC has had a reasonable opportunity to: (i) examine the terms of the proposed compromise or arrangement to which the application relates and a draft explanatory statement relating to the proposed compromise or arrangement; and (ii) make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory statement. 46 These requirements have been satisfied in the present case and accordingly my power has been enlivened. I am also satisfied that relevant provisions of the Corporations Regulations 2001 (Cth) (the Regulations) and the Federal Court (Corporations) Rules 2000 (Cth) have been satisfied. Let me turn then to the exercise of discretion. 47 My function on an application to order the convening of a meeting is supervisory. At this stage I should generally confine myself to ensuring that certain procedural and substantive requirements have been met including dealing with adequate disclosure, with limited consideration of issues of fairness. But having said that, it is appropriate to consider the merits or fairness of a proposed scheme at the convening hearing if the issue is such as would unquestionably lead to a refusal to approve a proposed scheme at the approval hearing, that is, the proposed scheme appears now to be on its face "so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further" (Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [44] per French J). But in the present case, in my view there is no issue arising from the Scheme which would unquestionably lead to a refusal to approve the Scheme at the approval hearing. It cannot be said that the Scheme on its face is "so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further". Put another way, the Scheme is not of such a nature and cast in such terms that if it receives the support of the statutory majorities at the meeting, nevertheless I would not be likely to approve it at the second court hearing. 48 Let me elaborate on this question as to whether the Scheme is fit for consideration by the proposed meeting, in the sense that it is of such a nature and cast in such terms that, if it achieves the statutory majority at the members' meeting, I would be likely to approve it, and then I will say something on the question as to whether the members are to be properly informed as to the nature of the Scheme before the meeting.
(a) Is the Scheme fit for consideration? 49 Let me deal with the first matter. In my view in summary, the Scheme is fit for consideration by the proposed meeting. 50 Now the question whether to accept particular consideration for shares is a commercial matter for the members of Amcor to assess. And they ought not be prevented from having the opportunity to do so provided that I can be satisfied that they are acting on sufficient information and with time to consider what they are voting on. But of course, I am required to scrutinise the terms of the Scheme to satisfy myself that there is no element of unfairness in or other undesirable feature of those terms that would be likely to preclude the approval of the Scheme if it came before me for approval. And this is so notwithstanding the unanimous favourable recommendation and voting intention statements from all directors of Amcor and the expression of opinion in the independent expert report that the Scheme is in the best interests of Amcor shareholders. 51 In the present case relevant to this question of fitness, Amcor has drawn my attention to the following particular features of the Scheme: (a) Performance risk. (b) Deemed warranty by Amcor shareholders. (c) Termination Fee. (d) Exclusivity arrangements. (e) Amcor employee incentive arrangements. (f) Section 411(17). 52 Let me discuss each in turn.
Performance risk 53 In considering whether to approve the Scheme involving the participation of New Amcor, being a person other than Amcor and its members, as I have already indicated it is necessary to ensure that New Amcor is bound to perform the role assigned to it, and that its obligations are able to be enforced. As I have already indicated, the obligations of New Amcor do not depend upon s 411, which is confined to the obligations of Amcor and its members. 54 Now in this context, in my view the Scheme effectively eliminates any performance risk. In particular, the Scheme provides that the transfer of the Scheme Shares to New Amcor on the Implementation Date is subject to the obligations of New Amcor to provide the Scheme Consideration to the Scheme Shareholders on the Implementation Date. In other words, the former will not occur without performance of the latter. Further, by reason of the Deed Poll, which as I have indicated was executed on 25 February 2019, New Amcor is bound to perform the roles assigned to it, and its obligations are able to be enforced. In particular, in the event that the Scheme becomes effective, New Amcor undertakes under the Deed Poll to the effect that I have discussed earlier.
Deemed warranty by Amcor shareholders 55 The Scheme provides that each Scheme Shareholder is taken to have warranted to Amcor and New Amcor that all of their Amcor shares that are transferred under the Scheme will, at the date of transfer, be fully paid and free from all security interests and interests of third parties of any kind and from any restrictions on transfer of any kind, and that such Shareholder has full power and capacity to sell and to transfer those shares together with any rights and entitlements attaching to such shares to New Amcor under the Scheme. 56 Now this warranty is in the usual form and is common place. Such warranties are acceptable, as long as the warranty is sufficiently disclosed in the explanatory statement to shareholders, which it is in the present case. In the draft Scheme Booklet, Amcor shareholders are informed that: you should be aware that, under the Scheme, you are deemed to have warranted to New Amcor that: • all of your Amcor Shares are fully paid and free from all "Liens" (as defined in the Scheme), security interests (including any "security interests" as defined in section 12 of the Personal Property Securities Act 2009 (Cth)) and interests of third parties of any kind, whether legal or otherwise, and restrictions on transfer of any kind; and • you have full power and capacity to transfer your Amcor Shares to New Amcor together with any rights and entitlements attaching to those share. You should ensure that these warranties can be given by you prior to, and remain correct as at, the Implementation Date. 57 Accordingly there is no difficulty with this warranty.
Termination Fee 58 The Transaction Agreement contains certain provisions in relation to a Termination Fee of US$130 million which may be payable by Amcor or Bemis in certain specified circumstances. The circumstances in which the Termination Fee may be payable by Amcor are summarised in the draft Scheme Booklet. They include: (a) termination of the Transaction Agreement where there has been a withdrawal or modification of the Amcor Board's recommendation that Amcor shareholders vote in favour of the Scheme; (b) where Amcor terminates pursuant to a right to terminate to enter into what is defined as a Superior Proposal and; (c) where either Amcor or Bemis terminates in circumstances where what is defined as a Competing Proposal has been made or announced and Amcor then consummates the Competing Proposal within twelve months. The Transaction Agreement records an acknowledgment by Amcor and Bemis that their agreement to pay the Termination Fee is an integral part of the transactions contemplated by the Transaction Agreement, and that without this agreement no party would have entered into the Transaction Agreement. 59 Now the evidence before me shows that the amount of the Termination Fee and the obligation(s) to pay this amount was the subject of commercial negotiation between the parties. Further, the evidence demonstrates that Amcor has considered that the Termination Fee is fair and reasonable, and that it was appropriate to agree to its terms in order to secure the significant benefits to Amcor and its shareholders resulting from the Scheme and the Bemis Merger. 60 Further, the Termination Fee represents less than 1% of the total equity value of Amcor having regard to the value of the bid consideration at the time of the announcement of the transaction. 61 In my view the Termination Fee does not represent a barrier to the convening of a meeting to consider the Scheme. 62 First, in my view the amount of the fee is not such that it would likely influence voting at the meeting. 63 Second, in Re APN News & Media Ltd (2007) 62 ACSR 400 at [44], Lindgren J said that: Break fees are justified by reference to: • the costs incurred by the offeror company; • the benefit that that company confers on the members of the target company by increasing its value; and • the desirability, from the viewpoint of those members, that takeover offers be made to them. 64 Lindgren J went on to discuss the views of the Takeovers Panel as expressed in its then Guidance Note on the subject. His Honour said at [52] that the relevant questions were whether the fee was likely to coerce shareholders into agreeing to the scheme or deter companies from mounting a competing offer. 65 Now in its current Guidance Note (Guidance Note 7 - Lock Up Devices (Issue 4)) the Takeovers Panel has indicated (at [7]) that in considering whether lock-up devices (including break fees) give rise to unacceptable circumstances, it will have regard to the effect or likely effect of the device on: (a) competition involving current or potential bidders, and whether it is significant; and (b) shareholders, and whether they may be substantially coerced into accepting the bid by reason of the diminution in the value of their company if they do not accept (see also on this aspect In the matter of Toll Holdings Ltd [2015] VSC 123 at [27] to [30] per Robson J). 66 The Takeovers Panel has also stated with respect to break fees (at [9]) that: Break fees The 1% guideline 9. In the absence of other factors, a break fee not exceeding 1% of the equity value of the target [defined as "The aggregate of the value of all classes of equity securities issued by the target having regard to the value of the bid consideration when announced…"] is generally not unacceptable… [although it then goes on to qualify that statement] 67 In the present context, the Termination Fee that I am considering is less than 1% of the total equity value of Amcor, having regard to the value of the Scheme Consideration when the proposed transaction was announced. 68 But in any event, I accept the submissions of Mr Neil Young QC for Amcor that the Termination Fee is not payable simply because Amcor shareholders reject the Scheme. Moreover, the fee is not capable of influencing shareholders in deciding whether to accept or reject the Scheme unless at some time before the meeting a circumstance arises which may trigger the obligation if the Scheme is not approved. 69 Further, apart from the size of the Termination Fee, the relevant provisions of the Transaction Agreement are consistent with the guidelines published by the Takeovers Panel, namely, that in the absence of other factors, reasonable triggers for the payment of such a fee might include: (a) a change of directors' recommendation; (b) a competing transaction that successfully completes. 70 Accordingly, in my view the provisions for the Termination Fee do not represent a barrier to the convening of a meeting to consider the Scheme.
Exclusivity Arrangements 71 Pursuant to the Transaction Agreement, Amcor has agreed that it will not, inter-alia: (a) initiate, solicit, knowingly encourage or otherwise knowingly facilitate any enquiries or the making of a proposal or offer that constitutes or would reasonably be expected to lead to a competing proposal to the Scheme; (b) enter into any agreement relating to an Amcor Competing Proposal (as that expression is defined); or (c) fail to make the Amcor Board Recommendation (as that expression is defined) in support of the Scheme, or publicly propose to recommend, adopt or approve an Amcor Competing Proposal. 72 Bemis has agreed to equivalent restrictions in the Transaction Agreement. 73 These restrictions are to apply until the Transaction Agreement is terminated. For example, either party may terminate the Transaction Agreement if the Scheme and the Bemis Merger have not completed by the end date being 6 August 2019. Moreover, the restrictions are subject to a fiduciary "carve out", which in Bemis' case is expressed to apply until Bemis shareholder approval is obtained, and which in Amcor's case is expressed to apply up and until the passing of any resolution by Amcor shareholders to agree to the Scheme. Further, the terms of the exclusivity arrangements are clearly summarised in the draft Scheme Booklet. 74 The exclusivity provisions were the outcome of commercial negotiations which took place between Amcor and Bemis, in which Amcor was assisted by external legal and financial advisers to ensure that the terms of the Transaction Agreement including the exclusivity clauses were in the best interest of Amcor. 75 Now generally speaking, and as noted by Robson J in Toll Holdings at [36] and in Re Skilled Group Ltd (No 1) (2015) 113 ACSR 525 at [50], such provisions are ordinarily found in merger implementation agreements. 76 Let me say something more about the fiduciary carve out. 77 The fiduciary carve out provides that, notwithstanding various matters, the Amcor Board may make an Amcor Adverse Recommendation Change (as defined) and/or terminate the Transaction Agreement in order to concurrently enter into an Amcor Competing Proposal if the Amcor Board has determined in good faith following consultation with outside legal counsel and a financial advisor that the Competing Proposal constitutes an Amcor Superior Proposal (as defined), or, in the case of an Amcor Adverse Recommendation Change, that failing to take the action would reasonably be expected to be inconsistent with the directors' fiduciary duties. The position therefore is that prior to the Amcor shareholders passing any resolution to agree to the Scheme, but subject to the Amcor Board making the said determination: (a) Amcor may provide access to information to a person who has made a Competing Proposal; (b) Amcor may participate in discussions or negotiations regarding such Competing Proposal; and/or (c) the Amcor Board may withdraw or change their recommendation in support of the Scheme and/or enter into an agreement for a Superior Proposal. 78 Now in prior correspondence with Amcor and in ASIC's letter to Amcor dated 11 March 2019 tendered before me yesterday, ASIC has indicated a preference that the fiduciary carve out continue to apply even in the event that Amcor shareholders agree to the Scheme at the Scheme Meeting. ASIC has stated that the reason for this is that under Australian law the scheme process does not end when shareholders vote, and there is no way of knowing the actual timing between shareholder approval and implementation of the Scheme, and there may be delays. ASIC has stated in this context that it considers that it is conceivable that circumstances may arise post-shareholder approval which would mean that the directors' failure to undertake certain actions could be a breach of fiduciary obligations. But in my view such matters are more appropriately addressed at the second Court hearing, by which time the Amcor shareholders would have voted in favour of the Scheme and the possibility referred to by ASIC of circumstances that may arise post-shareholder approval will then be known. 79 Further, as Mr Young QC correctly contended before me, the changes suggested by ASIC are unlikely to confer any realistic advantage upon shareholders in any event. ASIC's concerns are unlikely to materialise. They would require a rival bid for the acquisition of Amcor or a controlling interest in Amcor from a third party who has waited some 8 months since the Scheme was announced and until after Amcor and Bemis shareholders have each voted in favour of the relevant transactions before making any proposal. They would also require the alternative proposal to be sufficiently certain and superior for the Amcor directors to wish to jettison the Bemis transaction, despite Amcor shareholders having agreed to it. Further and in any event, any last-minute emergence of a rival Competing Proposal in the time between the Scheme Meeting and the approval hearing, which is only a very short period between 2 May and 7 May 2019, is a matter which I can later take into account in exercising my discretion whether to approve the Scheme agreed to by shareholders after hearing from any shareholder who wishes to appear to make submissions or other sufficiently interested party. Further, Amcor indicated to me yesterday that if a rival Competing Proposal arises, it will draw it to my attention on the approval hearing. 80 I would also make another general point. Whatever may be the contractual temporal limit in terms of the operation of the fiduciary carve out, irrespective of that contractual limitation the Amcor directors may have over-riding statutory and fiduciary duties in any event which cannot be contracted out of and do not cease to exist whatever the Transaction Agreement stipulates as a temporal limitation. 81 Further, Dr Robert Austin for Bemis has also contended that I should defer consideration of ASIC's concern until the second Court hearing. If the correct approach to the first hearing is in essence that I should not order the convening of the meeting unless the Scheme is of such a nature and cast in such terms that, if it receives the support of the statutory majorities at the scheme meeting, I would be likely to approve it on the hearing of an application which is unopposed, then if a rival bid is very unlikely to be made during the very small window after the fiduciary carve out ends but before the second Court hearing, then ASIC's concern on that issue does not reduce the now forecast likelihood that I will approve the Scheme at the second Court hearing. In substance his position is similar to Amcor, and I agree with his submissions. 82 In summary, in my view the fiduciary carve outs applying to Amcor and also Bemis are appropriate, the exclusivity period of up to 12 months is reasonable in light of the size, nature and complexity of the relevant transactions and the exclusivity provisions have been given adequate prominence in the draft Scheme Booklet. For all of these reasons, the exclusivity arrangements do not prevent me from now making an order to convene a meeting of Amcor shareholders to vote on the Scheme.
Amcor employee incentive arrangements 83 Amcor operates incentive plans pursuant to which cash and equity awards are offered to senior executives as an incentive and reward on short-term and long-term bases. Details of how Amcor's incentive plans will be impacted by the transactions contemplated in the Transaction Agreement including the Scheme are set out in the draft Scheme Booklet. 84 In my view these arrangements do not require any of those shareholders who hold such incentives to meet separately as a separate class from those shareholders who do not hold such incentives in order to consider and vote on the proposed Scheme. The issue in this context is whether those persons with the benefit of existing incentive plans who are also current shareholders should form a separate class because they will receive a benefit from the Scheme, which would provide them additional CDIs or shares (or benefits) in advance of the Scheme's implementation (if approved). 85 I agree with what Robson J said in Skilled Group at [82], which observations apply with equal force before me: I am satisfied that the performance rights or options held by some employees do not give rise to a separate class of members. It is worth noting at the outset that the rights will not vest until after the meeting to approve the scheme is held. Accordingly, the issue of additional shares will not influence the voting at the meeting directly. The question is whether the rights and options themselves (and the prospect of additional shares upon their vesting) gives rise to a divergence of interests with other shareholders. I do not consider that it does. The shares to be issued if the rights or options vest are not of a different type than those of other shareholders. Moreover, it appears to me that the employees with performance rights or options are in no different position from any other employee of the company who would be impacted by the scheme's implementation in different ways on the basis of various interests extraneous to their status as members. 86 Accordingly, no separate class meetings are necessary or desirable. The holders of incentives who are also Amcor shareholders will participate in the Scheme on the same basis and receive the same consideration as Amcor shareholders who are not holders of incentives. That is, all shareholders are being treated equally under the Scheme. There is no additional benefit being offered by New Amcor to these shareholders under or in connection with the Scheme.
Section 411(17) 87 My power to approve a scheme is restricted by s 411(17). At the approval stage, I must be satisfied that there is no proscribed purpose as described in s 411(17)(a) or there must be provided to me a statement in writing by ASIC that it has no objection to the arrangement (s 411(17)(b)). But if such a statement is provided by ASIC, it will not be provided until the second Court hearing. 88 In my view, s 411(17) does not present a bar to a meeting now being ordered to be convened if it seems likely that ASIC will produce the relevant statement at the second Court hearing. Given that ASIC does not oppose the application for convening the meeting, it is appropriate for me to proceed at this stage on the basis that an application for approval would be unopposed by ASIC, and that ASIC will in due course provide a statement in the form contemplated by s 411(17)(b). Indeed, ASIC's Regulatory Guide 60 states that ASIC will provide a statement under s 411(17)(b) if (RG 60.104): (a) all material information relating to the proposed scheme has been disclosed to ASIC; (b) the standard of disclosure to all members fulfils the requirements under regulation 5.1.01 and Schedule 8 of the Regulations; (c) the standard of disclosure to, and treatment of, all members is equivalent to the standard that would be required by the disclosure requirements and the principles in s 602 relating to the target securities in a takeover bid; and (d) there are no other reasons to oppose the scheme (e.g. public policy grounds) and the other matters referred to in its Guide have been complied with. 89 Accordingly, in circumstances where it seems likely that ASIC will produce a statement under s 411(17)(b) and there are presently no matters supporting an inference that there is any proscribed purpose, the requirements of s 411(17) do not present a bar to me ordering that a meeting be now convened.
(b) Will Amcor shareholders be properly informed? 90 The second principal aspect relevant to the exercise of my discretion is the adequacy of the information to be provided to shareholders. There are five matters that I should address being: (a) information for shareholders; (b) the independent expert's report; (c) verification of the draft Scheme Booklet; (d) ASIC's role; and (e) the Court's approval of the explanatory statement.
Information for shareholders 91 There are three aspects to the requirements of s 412(1): (a) First, the explanatory statement must explain the effect of the compromise or arrangement, and in particular state any material interest of the directors and the effect on those interests of the compromise or arrangement so far as it is different from the effect on the like interests of other persons. Now these matters are addressed in the draft Scheme Booklet. And the information in it makes it clear that the effect of the arrangement on the directors' interests is the same as on the like interests of others. (b) Second, the explanatory statement must set out the prescribed information. That prescription is in reg 5.1.01 and Schedule 8 (part 3) of the Regulations. Now a helpful table has been provided to me showing the specific requirements of the Act and the Regulations and the location in the draft Scheme Booklet of the statements by which those requirements are complied with. I am satisfied as to both its accuracy and its comprehensiveness. (c) Third, the explanatory statement must set out any other information that is material to the making of a decision whether to agree with the compromise or arrangement, being information which is within the knowledge of the directors and has not previously been disclosed. In my view the draft Scheme Booklet on its face seems to satisfy that requirement. 92 Let me deal with the question of dispatch. 93 Amcor proposes to dispatch a copy of the Scheme Booklet, which includes the Notice of Meeting, on or before 26 March 2019. It proposes to send the Scheme Booklet electronically to those shareholders who have elected to receive shareholder materials electronically, and by hard copy post for those shareholders who have not so elected. But there are two categories of Amcor shareholders to whom Amcor does not propose to send a Scheme Booklet or a Notice of Meeting. 94 First, Amcor does not propose to send a Scheme Booklet or a Notice of Meeting to shareholders who are not known at the address recorded in the Amcor share register, and who have not elected to receive communications from Amcor by email (lost shareholders). 95 As at the last practicable date of 1 March 2019: (a) there were 2,333 lost shareholders, representing 2.69% of Amcor shareholders by number; and (b) the lost shareholders held 1,351,867 Amcor shares in aggregate, representing 0.12% of the issued shares of Amcor. 96 Once a shareholder is considered a lost shareholder, apparently Amcor does not send shareholder communications to the address recorded in the Amcor share register for that shareholder. Rather, at the time Amcor sends shareholder communications each year for its annual general meeting, it sends a single page flyer to the address recorded in the Amcor share register for that shareholder which requests that the shareholder notify the Amcor registry that they are able to receive mail at that address, or to otherwise update their communication details and preferences with the Amcor share registry. Amcor proposes to follow a similar approach in respect of the lost shareholders when it dispatches the Scheme Booklet and Notice of Meeting. In particular, Amcor proposes to send a letter to the address recorded in the Amcor share register for each lost shareholder, which will include details of the proposed Scheme, including instructions as to how to obtain a copy of the Scheme Booklet from Amcor's website. 97 I am content with what is proposed. Indeed this approach entails that this substitute mode for the giving of notice will have sufficient prospects of bringing the meeting to the attention of those shareholders who do not have current contact details. 98 Further, I would also note clause 91 of Amcor's constitution which provides that: Where a security holder does not have a registered address or where the Company has a reason in good faith to believe that a security holder is not known at the security holder's registered address, a notice is deemed to be given to the security holder if the notice is exhibited in the Office for a period of 48 hours (and is deemed to be duly served at the commencement of that period) unless and until the security holder informs the Company of a registered place of address. 99 Now whilst Amcor intends to comply with this requirement, it is also appropriate in my view to take the additional step of sending a letter of the type just referred to. 100 Second, Amcor does not propose to send a Scheme Booklet or Notice of Meeting to Amcor shareholders with registered addresses in China. As at 1 March 2019 there were 8 shareholders with a registered address in China with those shareholders holding 184,577 Amcor shares in aggregate, representing 0.016% of the issued shares of Amcor. 101 Amcor has received external legal advice in relation to restrictions upon the distribution of the Scheme Booklet in certain foreign jurisdictions where Amcor shareholders have registered addresses. The advice has recommended that in light of the prohibitions on financial solicitation which apply in China, a Scheme Booklet not be sent to Amcor shareholders resident in China. Accordingly, Amcor proposes not to dispatch a copy of the Scheme Booklet to these shareholders in China. Instead, Amcor proposes to send a letter to these shareholders which refers to announcements available on the ASX and Amcor websites in relation to the proposed Transaction. 102 Furthermore, as I have ordered that the Scheme Meeting be convened, Amcor proposes to make an announcement to that effect to the market through the ASX Market Announcements Platform, and the announcement will be made available on the ASX website. The announcement will include the time and date of the Scheme Meeting, and it will annex a copy of the Scheme Booklet, which will include the Notice of Meeting. Further, a copy of the Scheme Booklet is proposed to be made available to download from Amcor's website shortly after the making of my order. 103 I am comfortable with what Amcor proposes in the above respects both generally and in relation to dealing with the China problem.
Independent Expert's Report 104 Amcor has obtained a report from KPMG Corporate Finance as to whether, in its opinion, the Scheme is in the best interest of Amcor shareholders. Strictly Amcor was not required to do so. Schemes of arrangement are not required to be the subject of a report by an independent expert unless the parties have a common director, or the acquiring company controls the relevant percentage of the scheme company, neither of which is the case here. 105 KPMG has expressed the view that the Scheme and the associated transaction(s) are in the best interests of Amcor shareholders. The basis of its assessment is set out in its report, which includes the following statement: The Transaction does not result in a change of control for Amcor Shareholders. Accordingly, we do not consider it appropriate to treat the Transaction as a control transaction. Rather, we consider the Transaction, including the Scheme, will be in the best interests of Amcor Shareholders, if Amcor Shareholders as a whole are assessed as being, on balance, better off, or, at least not worse off, if the Transaction proceeds than if it does not. The Transaction does, however, result in a change in Amcor Shareholders' underlying economic interest as a result of the Merger with Bemis. Consequently, in evaluating the advantages and disadvantages of the Transaction to Amcor Shareholders, it is necessary to compare the assessed value of Amcor Shares on a minority interest basis relative to the assessed value of New Amcor Shares on a minority basis, including the Net Synergies (i.e. 'fairness')….. In this context, the assessment of fairness forms part of the overall judgement on whether the Transaction is in the best interests of Amcor Shareholders. 106 There is then an extensive discussion of the advantages, disadvantages and risks of the Transaction, as defined in the Scheme Booklet, including the Scheme. KPMG then concludes that the Transaction, including the Scheme, is in the best interests of Amcor shareholders.
Verification 107 The affidavit of Ms Julie McPherson, Company Secretary and Group General Counsel of Amcor, made on 6 March 2019 has summarised the verification procedure implemented to ensure that the draft Scheme Booklet does not contain any misleading or deceptive statements and satisfies the applicable disclosure requirements. Ms McPherson was a member of the Due Diligence Committee established by the Amcor Board in connection with the Scheme. The evidence reveals that this process was thorough. As a result, Ms McPherson has been in a position to be satisfied that the draft Scheme Booklet includes all information material to the making of a decision by a shareholder whether or not to agree to the Scheme, that each relevant statement is accurate, that no material facts or considerations have been omitted, and that the draft Scheme Booklet is not misleading or deceptive in any material respect including by reason of any material omission. I have no reason to doubt her evidence. 108 Further, as Dr Austin has pointed out, Bemis has undertaken a verification and due diligence process with respect to those parts of the draft Scheme Booklet identified as Profile of Bemis (Part 5) and Risks of Bemis (Part 7.2) (Bemis Information). Evidence of this work has been provided in the affidavit of Mr Brandon Mason made on 6 March 2019 and his annexures. Mr Mason is a partner of the law firm, Faegre Baker Daniels LLP. That firm was responsible for establishing and coordinating the procedures for verifying the Bemis Information, with Mr Mason having oversight of those procedures. 109 In some respects the Bemis verification and due diligence process differs from current Australian practice where the latter process is typically supervised by a board committee. But in my view, the Bemis process appears to have thoroughly addressed the matters of substance that are also addressed under Australian practice. 110 Further, as Dr Austin pointed out, I can be even more confident of the Bemis verification and due diligence process for an additional reason. Most of the Bemis Information is financial information derived from Bemis SEC Filings. The SEC Filings are governed by the Securities Exchange Act of 1934 (US) and the filings are subject to review by the US Securities and Exchange Commission. Further, Bemis was required to maintain disclosure controls and procedures and internal review of financial reporting. Further, both the principal executive officer and principal financial officer of Bemis have reviewed each of the annual and quarterly reports included in the Bemis SEC Filings. Mr Mason has provided their most recent certificates made on 15 February 2019. 111 For the foregoing reasons there has been satisfactory verification by both Amcor (generally) and Bemis (in respect of the Bemis Information) concerning the content of and the inputs into the draft Scheme Booklet.
ASIC's role 112 As the Scheme is a members' scheme only, it is necessary that the explanatory statement be registered by ASIC before the notice of meeting is sent to Amcor shareholders. Before registering the statement, ASIC must conclude that it appears to comply with the requirements of the Corporations Act, and must form the opinion that the statement does not contain any matter that is false in a material particular or materially misleading in the form and context where it appears. 113 Amcor has provided the draft Scheme Booklet to ASIC, together with all amendments. There does not appear to be any unresolved matter of disagreement between ASIC and Amcor such as to impede registration. I do not see any difficulty concerning registration.
Approval of the explanatory statement by the Court 114 Section 411(1) provides that if I have made an order convening a meeting of members, I may approve the explanatory statement. But I do not propose to formally do so. I propose to follow the approach in In the matter of Ixla Ltd [2007] VSC 573 at [38], where Robson J said that in view of the requirement for registration by ASIC and the criteria that ASIC must apply, it was more appropriate that the explanatory statement for a members' scheme be dealt with in that fashion. I agree. 115 But I should stress that not to so formally approve should not be seen as casting any doubt on the accuracy or adequacy of the proposed Scheme Booklet which comprises the explanatory statement or that it is not suitable for registration by ASIC.
(c) Conclusion on discretion 116 In my view the Scheme is of such a nature and cast in such terms that if it achieves the requisite statutory majorities at the Scheme Meeting, I would be likely to approve it. It is therefore appropriate to make the orders sought by Amcor convening the meeting save for the approval order just discussed. In summary, the terms of the proposed Scheme are in a conventional form for a merger scheme with scrip consideration and there is no reason why the Scheme, if considered and adopted by the members, is not of such a nature as would be likely to be approved by me at the second hearing. It cannot be said that the Scheme appears on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further. Further, the Amcor shareholders are to be presented with a detailed analysis by KPMG of the Scheme and associated transactions and its advantages and disadvantages, and have the recommendation of the Amcor directors. Finally, the draft Scheme Booklet meets the statutory requirements, has been properly prepared and verified by Amcor, and has been examined by ASIC. 117 Let me deal with one final matter that I should note. 118 If I ultimately makes orders approving the Scheme at a second Court hearing, Amcor and New Amcor apparently intend to rely upon my approval for the purposes of the exemption under s 3(a)(10) of the Securities Act of 1933 (US) in connection with the implementation of the Scheme. Section 3(a)(10) is in the following terms: Except with respect to a security exchanged in a case under title 11 [of the United States Code], any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval. 119 But one of the conditions for the invocation of the exemption is that I must be advised before any hearing at which the Scheme is approved, that the issuer will rely on the s 3(a)(10) exemption based on my approval in the event that the Scheme is in fact approved. The draft Scheme Booklet contains disclosure in relation to this matter. I note that Amcor and New Amcor intend to rely on this exemption, and that this matter will be raised again with me at the approval hearing. 120 In conclusion, for the foregoing reasons I made orders yesterday afternoon convening a meeting of Amcor shareholders to consider the Scheme. I certify that the preceding one hundred and twenty (120) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach.
First Pacific Advisors LLC
Boart Longyear Ltd
[2007] VSC 573
[2015] VSC 123
[2011] VSC 93
[2010] VSC 231
(2017) 320 FLR 78
Orders made under s 411(1) convening a scheme meeting of ordinary shareholders (excluding certain lost, disclosure-restricted and email shareholders) to be held on 2 May 2019, with directions as to dispatch of scheme booklet and proxy forms, polling, chair, advertisement and adjournment of second hearing to 7 May 2019.