Fowler v Lindholm

Federal Court of Australia|2019-05-24|Before: Beach J

A. The Australian Securities and Investments Commission declined to provide a statement in writing in accordance with s 411(17)(b) of the Corporations Act 2001 (Cth). B. Nevertheless ASIC has no formal objection to the Scheme of Arrangement referred to in this Order.

Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the Scheme of Arrangement between the Plaintiff and its members agreed to by the said members at the meeting held on 22 May 2019 (the terms of which are as set out in Annexure A to these orders) be and is hereby approved.
Pursuant to s 411(12) of the Act, the Plaintiff be exempted from compliance with s 411(11) of the Act. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. ANNEXURE A Scheme of Arrangement

[The order entered is available on the Commonwealth Courts Portal, which attaches the Scheme]

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.

Act, Corporations Regulations 2001(Cth)

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