Fowler v Lindholm, in the matter of Opes Prime Stockbroking Limited

Federal Court of Australia|2022-11-16|Before: Halley J

Pursuant to ss 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff and its ordinary shareholders, being in the form tendered and marked Exhibit 1 in these proceedings (Scheme), be approved.
The plaintiff lodge with the Australian Securities and Investments Commission a copy of the approved Scheme at the time of lodging a copy of these Orders.
Pursuant to s 411(12) of the Act, the plaintiff be exempted from compliance with s 411(11) of the Act in relation to the Scheme. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 On 27 September 2022, after the first court hearing in this matter, I made orders under ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (Act) that the plaintiff, MOQ Limited (MOQ), convene a share scheme meeting (Scheme Meeting) of its members to consider a proposed scheme of arrangement (Scheme) between MOQ and its ordinary shareholders, other than shareholders of companies in the bidder's group of companies or any associates of those companies (Participating Shareholders), and approving a scheme booklet to be distributed by MOQ to the Participating Shareholders: see MOQ Limited, in the matter of MOQ Limited [2022] FCA 1160. 2 On 8 November 2022, I made orders under s 411(4)(b) of the Act approving the Scheme and orders under s 411(12) of the Act that the plaintiff be exempted from compliance with s 411(11) of the Act in relation to the Scheme. 3 These are my reasons for making those orders.

BACKGROUND 4 The Scheme Meeting was held on 4 November 2022. The statutory majorities required by s 411(4)(a)(ii) of the Act were attained at the meeting, as follows: (a) shares present and voting in favour, 99.69%; and (b) members present and voting in favour, 95.10%. 5 The application by MOQ for the approval of the proposed Scheme was uncontested. 6 The plaintiff relied on the following affidavits at the second court hearing (Second Court Hearing): (a) an affidavit of David Shein, a director of MOQ, affirmed on 7 November 2022. Mr Shein gave evidence of the Scheme Meeting, resolution and voting at the Scheme Meeting, that MOQ shareholders were notified of the Second Court Hearing, and that ASX announcements were made; (b) an affidavit of Lee Phillip Tamplin, the company secretary of MOQ, affirmed on 7 November 2022. Mr Tamplin gave evidence that Automic Pty Ltd ACN 152 260 814 (Automic) maintained the share register of MOQ. Mr Tamplin gave evidence of Automic's engagement by MOQ to facilitate communications with MOQ shareholders in connection with the Scheme, receive, collate and record proxy forms, appoint an employee to act as returning officer and oversee the conduct of the vote at the Scheme Meeting, register attendees at the Scheme Meeting and facilitate polling of MOQ shareholders at the Scheme Meeting. Mr Tamplin also gave evidence that confirmed the scheme booklet was despatched to MOQ shareholders and evidence of verifying attendees at the Scheme Meeting, tallying the vote undertaken at the Scheme Meeting, creating a report of the voting result and recording voter turnout; (c) an affidavit of Sylvia Fernandez, a partner of Thomson Geer and the solicitor for MOQ, affirmed on 8 November 2022. Ms Fernandez gave evidence that confirmed the Second Court Hearing was advertised and annexed to her affidavit a copy of the notice of the Second Court Hearing published in The Australian newspaper on or around 13 October 2022. Ms Fernandez also gave evidence that confirmed that no notice to appear at the Second Court Hearing had been received; and (d) an affidavit of Timothy James Flahvin, a partner of Thomson Geer and solicitor for MOQ affirmed on 8 November 2022. Mr Flahvin gave evidence that confirmed registration of the Scheme Booklet with the Australian Securities and Investments Commission (ASIC), annexed the usual letter from ASIC stating that it had no objection to the proposed Scheme and annexed a Conditions Precedent Certificate (CP Certificate) confirming that all conditions precedent to the Scheme had been satisfied or waived.

Legal Principles 7 In Dragontail Systems Limited, in the matter of Dragontail Systems Limited (No 2) [2021] FCA 834 (Dragontail), I summarised at [7]-[11] the principles relevant to the exercise of the discretion to grant approval to a scheme after it has received the consideration and approval of a meeting of the members or creditors under s 411(4)(b) of the Act. For ease of reference, I set out below those paragraphs of that judgment. 8 Insofar as discretionary considerations are concerned, the general principles which guide the Court's discretion are well established and are helpfully summarised by Gleeson J in EcoBiotics Limited, in the matter of EcoBiotics Limited (No 2) [2017] FCA 1031 at [26]-[28], which I respectfully adopt. 9 The Court has a discretion whether to approve a scheme and is not bound to approve it merely because it has previously made orders for the convening of meetings or because the statutory majorities have been achieved: Seven Network Limited, in the matter of Seven Network Limited (No 3) (2010) 77 ASCR 701; [2010] FCA 400 (Re Seven Network) at [31] (Jacobson J), citing NRMA Limited (Application of); NRMA Insurance Limited (Application of) (2000) 34 ACSR 261; [2000] NSWSC 408 (Re NRMA) at [22] (Santow J). 10 The Court will usually approach the task on the basis that the members are better judges of what is in their commercial interests than the Court: Re Seven Network at [32]-[33]. 11 At [35] to [40] of Re Seven Network, Jacobson J set out the following six matters which courts have taken into account as informing their discretion regarding whether or not to approve a scheme: (a) whether the shareholders have voted in good faith and not for an improper purpose: In the matter of Foundation Healthcare Limited (No 2) (2002) 43 ACSR 680; [2002] FCA 973 at [27] (French J, as his Honour then was); (b) whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it: Fowler v Lindholm, in the matter of Opes Prime Stockbroking Limited (2009) 178 FCR 563; [2009] FCAFC 125 at [79] (Emmett, Gordon and Jagot JJ); (c) whether the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion: Permanent Trustee Company (2002) 43 ACSR 601; [2002] NSWSC 1177 at [7] (Barrett J); (d) whether there has been full and fair disclosure of all information material to the decision: Re NRMA at [30]; (e) whether minority shareholders would be oppressed by the scheme: Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd (2002) 42 ACSR 582; [2002] WASC 207 at [39] (Parker J); and (f) whether the scheme offends public policy: see, for example, CSR Limited, in the matter of CSR Limited (2010) 183 FCR 358; [2010] FCAFC 34 at [51]-[56] (Keane CJ and Jacobson J).

Satisfaction of standard requirements 12 I was satisfied that the evidence relied upon by the plaintiffs established all of the procedural matters that were necessary to permit me to approve the Scheme. 13 The resolution seeking approval of the Scheme was passed by the requisite statutory majorities of 75% by votes cast and 50% by members voting at a duly convened meeting of MOQ shareholders. 14 Further, each of the conditions precedent to the Scheme had been satisfied or waived, other than final Court approval and lodgement of the order approving the Scheme with ASIC.

Discretionary considerations 15 As to fairness, the independent expert report prepared by Lonergan Edwards & Associates dated 7 September 2022 (Lonergan Edwards & Associates Report) concluded that the Scheme is fair and reasonable and in the best interests of MOQ shareholders. I was satisfied that there is no evidence to the contrary and nothing in the Lonergan Edwards & Associates Report, on its face, that suggests that the opinion should not be accepted. 16 Further, I observed that the reasonableness of the Scheme was established, at least on a prima facie basis, at the first court hearing pursuant to the principle in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 (Street CJ, with whom Hutley and Samuels JJA agreed), subject to any new matters being brought to the Court's attention at the Second Court Hearing. 17 There was nothing before me to suggest that the relevant MOQ shareholders voted other than in good faith, that they cast their votes for an improper purpose or that any member had been treated in a way that may be characterised as oppressive. Nor was there anything that materially cast doubt on the procedural integrity of the processes followed for the Scheme Meeting. 18 Further, I noted that no notice had been received of any opposition to the Scheme, no shareholders appeared to oppose the Scheme being approved at the Second Court Hearing and ASIC has provided a statement pursuant to s 411(17)(b) of the Act stating that it has no objections to the Scheme. 19 I was satisfied that fairness can be inferred in all the circumstances including the obtaining of the statutory majorities in the Scheme Meeting in a context where I was satisfied that there was adequate and verified disclosure and those who voted did so as the best judges of their own interests.

Voter turnout 20 The concept of voter turnout at a scheme meeting has no statutory basis, but as a matter of practice, the Court has (since the decision of Emmett J in Lion Nathan Limited, in the matter of Lion Nathan Limited (No. 2) [2009] FCA 1261 (Lion Nathan)) requested and had regard to such evidence for the purpose of assessing the integrity of the process. As Farrell J observed TriAusMin Limited, in the matter of TriAusMin Limited (No 2) [2014] FCA 833 (TriAusMin) at [10]: Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the Court at the second court hearing to consider the number of shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that shareholders did not vote either did not have notice of the meeting or were silent in protest of the scheme: Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7] and Re Seven Network Ltd (No 3) (2010) 267 ALR 583 … at [61] per Jacobson J; apathy should not be presumed to be antagonism: Re Matine Ltd (1998) 28 ACSR 268 at 295 per Santow J. 21 Voter turnout percentages at the Scheme Meeting were as follows: Number of votes cast (for or against) As a % of total voting shares Number of members who voted (for or against) or abstained As a % of total shareholders 203,007,184 71.55% 102 14.85%

22 These voter turnout percentages are broadly consistent with the voter turnout percentages noted in: Lion Nathan at [6] (Emmett J), 64% of shares participating; Avoca Resources Limited, in the matter of Avoca Resources Limited [2011] FCA 208 at [25] (Gilmour J), 72.38% by shares participating and 11.49% by persons participating; Re Auzex Resources Ltd (No 2) [2012] QSC 101 at [18] (Applegarth J) 42.3% by shares participating and 9.75% by persons participating; TriAusMin at [9] (Farrell J) 52.9% by shares participating and 10.94% by persons participating; Dragontail at [20] (Halley J) 78.7% by shares participating and 24.1% by members participating; and Over the Wire Holdings Limited, in the matter of Over the Wire Holdings Limited (No 2) [2022] FCA 181 at [19] (Halley J) 69.6% by shares participating and 18.1% by members participating. 23 I was satisfied that, given the evidence as to the despatch of the Scheme Booklet and the voter turnout percentages at the Scheme Meeting, there was nothing to suggest that there was any flaw in the procedure for convening the Scheme Meeting.

Section 411(11) exemption 24 Section 411(11) of the Act provides that copies of all orders made by the Court for approving a scheme pursuant to s 411(4)(b) of the Act must be annexed to every copy of the company's constitution issued after the approval of the scheme. Section 411(12) of the Act provides that the Court may exempt a company from complying with s 411(11) of the Act. 25 I was satisfied that it was appropriate to make an order pursuant to s 411(12) of the Act exempting MOQ from compliance with s 411(11) of the Act, in circumstances where MOQ will become a wholly owned subsidiary of the acquirer upon implementation of the Scheme: Re Toll Holdings Limited (No 2) [2015] VSC 236 at [18]-[19] (Robson J); In the matter of BINGO Industries Limited [2021] NSWSC 911 at [13] (Black J).

DISPOSITION 26 In all the circumstances I was satisfied, for the reasons outlined above, that orders be made approving the Scheme and exempting MOQ from compliance with s 411(11) of the Act. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.

At a glance

Court

Decision date

Before

Source

Judgment (10 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (22)

Cited By (2)