Fowler v Lindholm

BEACH J: 1 As I said in my reasons concerning the first court hearing (Healthscope Limited, in the matter of Healthscope Limited [2019] FCA 542), Healthscope Limited is a healthcare provider that operates private hospitals in Australia and pathology services across New Zealand and whose shares are currently listed on the ASX. 2 Healthscope has now applied for orders under s 411(4)(b) of the Corporations Act 2001 (Cth) (the Act) approving a scheme of arrangement (the Scheme) proposed to be made between Healthscope and its shareholders at the relevant record date (Scheme shareholders). ASIC has been given the required notice of the present hearing. As I have indicated previously, the Scheme will result in all shares in Healthscope held by Scheme shareholders being transferred to Brookfield BidCo. Brookfield BidCo is indirectly owned as to 99% by Brookfield LP and as to 1% by Brookfield Capital Partners V (CDN II) GP LP. Terminology in the present reasons will use the defined terms from my earlier reasons. 3 At the Scheme meeting on 22 May 2019, the resolution to agree to the Scheme was passed by 96.59% of shareholders present and voting in person or by proxy and 99.93% of votes cast. 4 The Scheme consideration is a cash payment of $2.465 per Scheme share. However, the Scheme provides for Scheme shareholders to make an election to receive scrip rather than cash in certain circumstances in the form of 2.465 class B shares in Brookfield HoldCo for every Scheme share held. But any entitlement to the Scheme scrip consideration is subject to a number of conditions, including that valid elections to receive the Scheme scrip consideration are made by Scheme shareholders holding in aggregate at least 10% of the issued Scheme shares. Now the evidence before me suggests that this condition is unlikely to be satisfied. In particular, Healthscope received elections from Scheme shareholders representing less than 0.01% of the Scheme shares in aggregate before the scrip election deadline, which was 10 May 2019. Accordingly, present indications are that the 10% minimum will not be satisfied by the Scheme record date of 30 May 2019, so the Scheme consideration will be cash only. 5 Now in case the Scheme was not agreed to by the Scheme shareholders, Brookfield LP also made a simultaneous off-market takeover offer to acquire all of the issued Healthscope shares for cash payments totalling $2.365 per share. But as Scheme shareholders have agreed to the Scheme, the takeover bid will not proceed unless I refuse to approve the Scheme. 6 Let me say something about my power to approve the Scheme under s 411(4)(b). In essence, my role at the second court hearing is to assess the Scheme taking into account the "totality of the give and take that is the compromise or arrangement" and to determine on that basis whether the Scheme is fair and reasonable (Re Boart Longyear Ltd (No 2) (2017) 323 FLR 241 at [56] per Black J). Of course, the Court can only approve a scheme of arrangement if the requisite majority of shareholders vote in favour of it, but I am not bound to approve the Scheme simply because I previously made orders for the convening of a Scheme meeting and subsequently the requisite majority of shareholders agreed to it. But I accept that shareholders voting collectively at the Scheme meeting are better judges of what is to their commercial advantage and in their interests than the Court and accordingly, absent good reason, I should give effect to their intentions. 7 Now whilst there is no exhaustive statement of the matters as to which I must be satisfied before granting approval, it is not in doubt that in exercising my power under s 411(4)(b), I should be satisfied that: (a) the Scheme complies with the law, including the relevant procedural requirements; (b) the Scheme was approved by shareholders acting in good faith and for proper purposes; (c) the Scheme is sufficiently fair and reasonable that an intelligent and honest shareholder properly informed and acting alone might approve it; (d) there has been an accurate and comprehensive disclosure of the details of the Scheme and its effect to those voting on it; (e) there is no suggestion of oppression of any minority; (f) there is no evidence that any third parties will be adversely affected by the operation of the Scheme; (g) the Scheme does not offend against any aspect of public policy; and (h) all matters that could be considered relevant to the exercise of my discretion have been brought to my attention. 8 I also need to be satisfied that the conditions precedent to the Scheme have been met, and that ASIC has been given the opportunity to draw my attention to any relevant matter(s). I would say now that I am so satisfied concerning the conditions precedent. Moreover, ASIC has had adequate opportunity to draw any necessary matters to my attention. I will discuss any relevant Chapter 6 question and s 411(17) later. 9 More particularly in considering whether the Scheme complies with the law, including the relevant procedural requirements, I need to satisfy myself that the procedural and other requirements in the Act, Corporations Regulations 2001 (Cth) and Federal Court (Corporations) Rules 2000 (Cth) have been complied with and that the requirements for a valid resolution of the shareholders have been satisfied. I am so satisfied, including as to any relevant class question which I disposed of on the last occasion. 10 In particular, I am satisfied that the Scheme materials have been properly despatched in accordance with my orders at the first hearing, the resolution agreeing to the Scheme has been passed by the statutory majorities required by s 411(4)(a), and ASIC as I say has been given an opportunity to consider the Scheme pursuant to s 411(17). 11 Now as I have said, my task is to consider whether the Scheme is fair and reasonable and the test of fairness and reasonableness is whether "an intelligent and honest [shareholder], properly informed, acting alone, might approve [the scheme]" (Fowler v Lindholm (2009) 178 FCR 563 at [79] per Emmett, Gordon and Jagot JJ). 12 But the Scheme shareholders' vote in favour of the Scheme is evidence of its inherent fairness. Put another way, if a majority of the Scheme shareholders have approved the Scheme, it is unlikely that the Scheme would be unreasonable. Further, I do not have to be satisfied that no better Scheme could have been devised. 13 Further, I have to be satisfied that "the minority is not being overridden by a majority having interests of its own clashing with those of the minority whom they seek to coerce" (In re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 239 per Lindley LJ, applied in Re Boart Longyear Ltd (No 2) (2017) 323 FLR 241 at [57] per Black J). 14 Further, it is also appropriate to look more broadly and to consider the indirect consequences of approving the Scheme, the effects of the Scheme on any third parties and matters of public policy. 15 In summary, in my view the Scheme should be approved for the following reasons. 16 First, as I have said, the Scheme shareholders voted overwhelmingly in favour of the Scheme at the Scheme meeting held on 22 May 2019. 17 Further, voter turnout at the Scheme meeting was reasonable. It would seem that 62.17% of all shares were voted either 'For' or 'Against' the Scheme resolution or were the subject of an abstain instruction for voting on the Scheme resolution compared with the total number of shares (1,741,161,795) eligible to be voted, and 16.96% of shareholders voted either 'For' or 'Against' the Scheme resolution or provided an abstain instruction for voting on the Scheme resolution compared with the total number of shareholders (21,595) eligible to vote. The authorities relating to the approval of a scheme where there has been low voter turnout at the scheme meeting are not particularly relevant to this matter. But in any event, the comments of Santow J in Re Matine Ltd (1998) 28 ACSR 268 at 295 that "[t]he apathetic shareholder who chooses not to vote upon a scheme should not be presumed to be antagonistic to the scheme or to warrant paternalistic protection" are apposite. 18 Second, there is no suggestion of any bad faith motivation or improper purpose in relation to the Scheme concerning either how it has been propounded or voted on. 19 Third, the outcome of the Scheme meeting is prima facie evidence that the Scheme is fair and reasonable, and I am satisfied based on its outcome that an intelligent and honest shareholder, properly informed and acting alone, would approve of the Scheme. Moreover, the fairness and reasonableness of the Scheme is supported by the report of the independent expert, Grant Samuel. 20 Fourth, all matters of potential relevance to the approval of the Scheme would seem to have been drawn to my attention and, through the transaction booklet, disclosed to the Scheme shareholders. 21 Fifth, Healthscope has received no notice that any Scheme shareholder intended to oppose the exercise of my discretion to approve the Scheme. Indeed, no Scheme shareholder attended before me this morning to oppose the approval. 22 Sixth, no minority interests are adversely impacted by the Scheme in any relevant way. 23 It is appropriate to discuss some particular aspects in further detail.

Passing of the approval resolutions 24 In accordance with order 6 of my convening orders, the Scheme meeting was chaired by Ms Paula Dwyer. Further, in accordance with order 4 of my convening orders, voting on the resolution to approve the Scheme was conducted by way of poll. The returning officer for the Scheme meeting calculated the results of the poll in respect of the Scheme resolution as follows: (a) 1,081,697,151 votes were cast in favour of the resolution to approve the Scheme, representing 99.93% of total votes cast on the resolution; and (b) 3,516 Scheme shareholders voted in favour of the resolution, representing 96.59% of members present and voting on the resolution in person or by proxy. 25 Accordingly, in accordance with s 411(4)(a)(ii), the resolutions were passed by a majority in number of members present and voting either in person or by proxy at the Scheme meeting, and by at least 75% of the votes cast on the resolution. 26 Now as noted in my earlier reasons, on 1 February 2019 NWH REIT issued an announcement saying that NWH AssetCo had a right to acquire up to 13.41% of Healthscope shares from Deutsche Bank AG (DB) pursuant to a forward derivative contract between NWH AssetCo and DB entered into on 8 May 2018. Further, under the Process Deed, NWH AssetCo/NWH REIT were obliged to vote the Healthscope shares the subject of the forward derivative contract in favour of the Scheme. 27 In light of the matters raised with me by ASIC at the first court hearing, Healthscope undertook to tag the votes of NWH REIT and its associates at the Scheme meeting, and to provide me with a voting report for the purposes of the second court hearing detailing how NWH REIT and its associates voted their Healthscope shares in respect of the Scheme. This was so that I could consider the effect of any voting by NWH AssetCo or its affiliates on the passing of the resolution to approve the Scheme, including whether those votes should be discounted if I formed the view that NWH AssetCo or its affiliates voted for the Scheme not because it benefits them as members of the class generally but because it benefits them in some other capacity. 28 Now I noted in my earlier reasons (at [125]) that the voting report might demonstrate that "these votes did not make a difference to the otherwise outcome in any event. In other words, the Scheme vote by other members may carry the day in any event". The voting report demonstrates that this has turned out to be the case. In particular, the voting report and the poll report show that: (a) the relevant shares, which were at the time of the Scheme meeting held by RTS Nominees Pty Limited (RTS) on behalf of by NWH AssetCo, were voted in favour of the Scheme, these shares being 231,387,330 in number representing 13.29% of the shares on issue in Healthscope, and 21.37% of the shares voted at the Scheme meeting in person or by proxy; and (b) if the votes cast by RTS were discounted, then: (i) 99.91% of the votes cast would have been in favour of the Scheme, the result then being 850,309,821 votes for and 851,081,222 total votes cast; and (ii) 96.59% of shareholders present and voting would have voted in favour of the Scheme, the result then being 3,515 shareholders voting for the resolution out of a total number of 3,639. 29 For completeness, I note that there had been a transfer of the 231,387,330 shares from DB to NWH AssetCo, and then to RTS who holds them on trust for NWH AssetCo. 30 In summary, the question whether or not the votes cast on behalf of NWH AssetCo ought to be discounted does not arise. The Scheme easily carried even without such votes.

Conditions precedent 31 Clause 3.1 of the Scheme lists the following conditions precedent upon which the Scheme is conditional: (a) all of the conditions set out in clause 3.1 of the implementation deed (other than the condition relating to Court approval of the Scheme) having been satisfied or waived in accordance with the terms of the implementation deed by 8.00 am on the second court date; (b) neither the implementation deed nor the deed poll having been terminated in accordance with their terms before 8.00 am on the second court date; (c) approval of the Scheme by the Court under s 411(4)(b), including with any alterations made or required by the Court under s 411(6) and agreed to by Brookfield and Healthscope; (d) such other conditions made or required by the Court under s 411(6) in relation to the Scheme and agreed to by Brookfield and Healthscope having been satisfied or waived; and (e) the orders of the Court made under s 411(4)(b) (and, if applicable, s 411(6)) approving this Scheme coming into effect pursuant to s 411(10) on or before the End Date or any later date to which Brookfield and Healthscope agree in writing. 32 Clause 3.2 of the Scheme requires both Brookfield and Healthscope to provide to the Court on the second court date a certificate(s) confirming whether or not all of the conditions precedent in clauses 3.l(a) and (b) of the Scheme (referred to in sub-paragraphs (a) and (b) above) have been satisfied or waived. 33 The relevant certification demonstrating such satisfaction has now been provided to me. Further, I have not seen fit to impose any further alterations or conditions under s 411(6).

Section 411(17) 34 As noted in my earlier reasons, the Court's power to approve the 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 (see s 411(17)(b)). ASIC has refused to provide such a statement and in its letter dated 23 May 2019 forwarded to the directors of Healthscope it has said the following: …ASIC has concerns with the approach adopted to the interests of Northwest Healthcare Properties Real Estate Investment Trust and its associates (NorthWest) by Brookfield and Healthscope in connection with the Scheme. ASIC's concerns in connection with the interests of NorthWest in relation to the Scheme have been referred to in previous correspondence and the Submissions. In summary they arise from the following matters: (a) NorthWest acquired its interest in Healthscope through a share forward derivative arrangement (equity swap) with the clear objective of obtaining the benefits of a transaction involving NorthWest acquiring real estate assets of Healthscope. It did so at a time when Healthscope was in receipt of a proposed control transaction; (b) Brookfield, in advancing its own proposed control transaction, subsequently entered into various interlocking agreements with Healthscope and NorthWest under which it, inter alia: (i) secured the sale and leaseback of around $1.3bn of properties by Healthscope to NorthWest; (ii) agreed that NorthWest would provide certain financing in support of the Scheme; and (iii) agreed that NorthWest would vote in favour of the Scheme and tender into the contemporaneous takeover bid securities equivalent in number to those referenced in NorthWest's equity swap; and (c) NorthWest has acknowledged that Brookfield's facilitation of the entry into the sale and leaseback arrangements 'will provide significant benefits to Northwest and Northwest's stakeholders'. ASIC notes the opinion of Healthscope's independent expert that the sale and leaseback arrangements do not involve the giving of a 'net benefit' on the basis of the expert's interpretation of the application of that concept from the Takeover Panel's Guidance Note 21. ASIC nonetheless takes the view that: (a) a relevant advantage is given to NorthWest under the interlocking arrangements over and above the benefits of the Scheme; (b) the advantage is conferred as a result of actions by Brookfield and/or its associates the acquirer under a proposed scheme of arrangement and bidder under a takeover bid for Healthscope; and (c) in exchange for the advantage NorthWest committed to provide support to the proposed Scheme - including by voting its interests in Healthscope in favour of the Scheme. … In ASIC's view the acquisition of control of Healthscope by Brookfield, and the advantages extracted by NorthWest as part of this control transaction in exchange for agreeing to provide its voting power in support of the scheme raises concerns regarding the principles of equality and market efficiency in s602 of the Act. On the basis of the above concerns, I confirm ASIC has decided not to provide a no-objection statement under s411 (17)(b) of the Act for the Scheme. … 35 But I am satisfied that there is no proscribed purpose as described in s 411(17)(a) and, further, that to the extent that there is any s 602 concern, it is now of academic interest only given that the votes cast on behalf of NWH AssetCo were not required to carry the Scheme resolution. Further, some of ASIC's concerns merely repeat what it submitted to me at the first court hearing and upon which I have already ruled. 36 In my view the Scheme has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Ch 6 of the Act. Further, I agree with Barker J's observations in Re Rusina Mining NL (No 2) (2010) 78 ACSR 615 at [38] that: The specific intention to avoid the operation of a specific provision of Ch 6, in my view, cannot be inferred from the general intention to prefer the procedure under Pt 5.1 where Pt 5.1 delivers a legal outcome that cannot be achieved under the provision of Ch 6 - here, 100% ownership determined in one procedure - or a legitimate, commercial outcome - for example, the timely and cost effective implementation of a merger. In the latter case, while the distinction may be subtle the purpose is not to avoid Ch 6 (or the operation of a particular provision of it) but to prefer Pt 5.1 generally. 37 Further, in my earlier reasons I noted that there were at that stage no matters supporting an inference that there was any proscribed purpose. Moreover, I noted that the takeover bid had been made by reference to Ch 6 of the Act and was conditional on the Scheme not becoming effective. I concluded that: It would appear that the transaction as presently structured was not proposed for the purpose of enabling any person to avoid the operation of any provision of Chapter 6 of the Act. And ASIC has not suggested otherwise. 38 The position has not changed in this respect since the first court hearing, and I am satisfied that there is no proscribed purpose as described in s 411(17)(a). And as I say, it is well established that the Court should not refuse approval of a scheme of arrangement merely because it could have been effected under Ch 6.

Conclusion 39 In summary, I propose to exercise my discretion to approve the Scheme for, inter-alia, the following reasons: (a) the overwhelming support of the Scheme shareholders as reflected in the voting results of the Scheme meeting; (b) the opinion of the independent expert that the Scheme is fair and reasonable and in the best interests of Scheme shareholders; (c) the absence of opposition to the Scheme by any Scheme shareholder; and (d) the comprehensive disclosure in the transaction booklet of the potential benefits and disadvantages of the Scheme. 40 I also propose to grant an exemption from the requirements of s 411(11). Section 411(11) requires, subject to s 411(12), that a copy of the Court's order approving a scheme of arrangement be annexed to every copy of the company's constitution issued after the order is made. But s 411(12) allows me to exempt a body from compliance with this provision. In Re Equinox Resources Ltd (2004) 49 ACSR 692, EM Heenan J at [22] indicated that the purpose of s 411(11) was: ... to ensure that any modification of the rights of shareholders of the company which is the subject of the scheme or any other provision in the scheme which may affect the interests of persons dealing with the company, such as prospective creditors or purchasers of shares, will be sure to have the opportunity of seeing what the exact rights of shareholders in the company or of its creditors are, as modified, if at all, by the scheme which has been approved. 41 In my view, exemption from compliance with s 411(11) is appropriate given that the Scheme will not alter the constitution of Healthscope or the rights of shareholders, creditors or other persons dealing with the company. Current shareholders are fully informed of the Scheme and will be informed in the event that the Court approves the Scheme. Further, no ongoing purpose will be served by requiring the orders approving the Scheme to be annexed to Healthscope's constitution. The orders will be irrelevant once the Scheme is implemented and Healthscope becomes a wholly owned subsidiary of Brookfield BidCo. 42 In summary, I will grant the orders sought by Healthscope. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach.