Ijack Pty Ltd v Cobb, in the matter of Vealls Limited

Introduction 1 Vealls Limited (Vealls), then known as A.J. Veall Electrics Limited, was incorporated in April 1951 in Victoria. Vealls has been majority owned and controlled by the Veall family since incorporation. There are three classes of Vealls shares on issue, being capital shares, income shares and preference shares. 2 In recent years, Vealls has sold key operating assets. In particular, in 2013 it sold a ski field located on the South Island of New Zealand and, in April 2017, it sold a forest in France. Following these asset sales, Vealls holds some shares, a property located at the corner of Hearn Road and Forest Drive, Mount Martha, Victoria (the Mount Martha Property) and cash. 3 In late 2017, Vealls undertook an on-market buy-back of its capital and income shares at the following prices: (a) capital shares - $14.56 per share; and (b) income shares - $0.52 per share. 4 The Veall family did not participate in the buy-back. In the Australian Securities Exchange (ASX) announcement in relation to the buy-back it was stated that if as a result of the buy-back the Veall family's aggregate holding of shares met or exceeded the relevant thresholds under s 664A(2) of the Corporations Act 2001 (Cth), the family intended to commence a process of compulsorily acquiring all of the shares in Vealls not held or controlled by the family at the same prices as the buy-back. 5 On 29 November 2017, Vealls announced that the Veall family had advised it that the family met the compulsory acquisition thresholds in s 664A(2) and the family intended to commence the process of compulsorily acquiring all the Vealls shares not held or controlled by the family. 6 On 26 February 2018, Duncan Reginald Veall (Mr Veall), the company secretary of the plaintiff, Ijack Pty Ltd (Ijack), signed notices of compulsory acquisition in respect of Vealls' capital, income and preference shares. The consideration offered was as follows: (a) capital shares - $14.56 per share; (b) income shares - $0.57 per share; and (c) preference shares - $0.11 per share. 7 On 27 February 2018, these notices were lodged with the Australian Securities and Investments Commission (ASIC) and sent to each other shareholder in Vealls. 8 A number of shareholders objected to the compulsory acquisition. 9 In relation to the income shares, people who held at least 10% of the income shares covered by the relevant compulsory acquisition notice objected to the acquisition. In these circumstances, Ijack applies to the Court, pursuant to s 664F of the Corporations Act, for approval of the acquisition of the income shares covered by the relevant compulsory acquisition notice. For the purposes of this application, the fourteenth defendant has been appointed as the representative of the holders of the income shares. 10 In relation to the preference shares, Ijack initially calculated that people who held at least 10% of the preference shares covered by the relevant compulsory acquisition notice had objected. Accordingly, initially, Ijack applied to the Court for approval of the acquisition of the preference shares. However, Ijack subsequently recalculated this figure and realised that the proportion did not exceed 10%. Having realised that the 10% objection threshold had not been met and that it was required to compulsorily acquire the outstanding preference shares, Ijack completed the acquisition of the outstanding preference shares on 24 April 2018. In these circumstances, Ijack seeks an order that the time to comply with ss 666A(1)(b) and 666B(1) of the Corporations Act in relation to the preference shares that are the subject of the relevant compulsory acquisition notice be extended to 24 April 2018 pursuant to s 1322(4)(d) of the Corporations Act. This order is not opposed. 11 No issue arises for present purposes in relation to the capital shares. 12 For the reasons that follow, in my view, the standing requirements and the procedural requirements for approval of the compulsory acquisition of the outstanding income shares are satisfied. Further, I consider that Ijack has established that the terms set out in the relevant compulsory acquisition notice give a fair value for the income shares. Accordingly, I will approve the acquisition of the income shares. I also consider it appropriate to make an order extending time in relation to the acquisition of the preference shares.

Applicable principles 13 The provisions dealing with the compulsory acquisition of securities by a 90% holder are set out in Div 1 of Pt 6A.2 of the Corporations Act. Part 6A.2 was inserted into the Corporations Law in early 2000 following a comprehensive review of existing mechanisms whereby a majority owner could compulsorily acquire outstanding securities in a company. The primary intention of the new provisions was to "make it easier for majority shareholders to obtain the benefits of 100 per cent ownership" and to discourage 'greenmailing': Explanatory Memorandum, Corporate Law Economic Reform Program Bill 1998 (Cth), pp 12 and 40; see also Capricorn Diamonds Investments Pty Ltd v Catto (2002) 5 VR 61 (Capricorn Diamonds) at [21]. 14 Section 664A relevantly provides as follows: 664A Threshold for general compulsory acquisition power 90% holder - holder of 90% of securities in particular class (1) A person is a 90% holder in relation to a class of securities of a company if the person holds, either alone or with a related body corporate, full beneficial interests in at least 90% of the securities (by number) in that class. 90% holder - holder with 90% voting power and 90% of whole company or scheme (2) A person is also a 90% holder in relation to a class of securities of a company if: (a) the securities in the class are shares or convertible into shares; and (b) the person's voting power in the company is at least 90%; and (c) the person holds, either alone or with a related body corporate, full beneficial interests in at least 90% by value of all the securities of the company that are either shares or convertible into shares. Note: Subsection 667A(2) provides that the expert's report that accompanies the compulsory acquisition notice must support the paragraph (c) condition. 90% holder may acquire remainder of securities in class (3) Under this section, a 90% holder in relation to a class of securities of a company may compulsorily acquire all the securities in that class in which neither the person nor any related bodies corporate has full beneficial interests if either: (a) the holders of securities in that class (if any) who have objected to the acquisition between them hold less than 10% by value of those remaining securities at the end of the objection period set out in the notice under paragraph 664C(1)(b); or (b) the Court approves the acquisition under section 664F. If subsection (2) applies to the 90% holder, the holder may compulsorily acquire securities in a class only if the holder gives compulsory acquisition notices in relation to all classes of shares and securities convertible into shares of which they do not already have full beneficial ownership. Note: Subsection 92(3) defines securities for the purposes of this Chapter. (4) This section has effect despite anything in the constitution of the company whose securities are to be acquired. ... 15 Section 664F provides as follows: 664F The Court's power to approve acquisition (1) If people who hold at least 10% of the securities covered by the compulsory acquisition notice object to the acquisition before the end of the objection period, the 90% holder may apply to the Court for approval of the acquisition of the securities covered by the notice. (2) The 90% holder must apply within 1 month after the end of the objection period. (3) If the 90% holder establishes that the terms set out in the compulsory acquisition notice give a fair value for the securities, the Court must approve the acquisition of the securities on those terms. Otherwise it must confirm that the acquisition will not take place. Note: See section 667C on valuation. (4) The 90% holder must bear the costs that a person incurs on legal proceedings in relation to the application unless the Court is satisfied that the person acted improperly, vexatiously or otherwise unreasonably. The 90% holder must bear their own costs. 16 Section 667C provides as follows: 667C Valuation of securities (1) To determine what is fair value for securities for the purposes of this Chapter: (a) first, assess the value of the company as a whole; and (b) then allocate that value among the classes of issued securities in the company (taking into account the relative financial risk, and voting and distribution rights, of the classes); and (c) then allocate the value of each class pro rata among the securities in that class (without allowing a premium or applying a discount for particular securities in that class). (2) Without limiting subsection (1), in determining what is fair value for securities for the purposes of this Chapter, the consideration (if any) paid for securities in that class within the previous 6 months must be taken into account. 17 In Capricorn Diamonds, Warren J (as her Honour then was) summarised the provisions of Pt 6A.2 as follows at [9]: The legislative scheme provides that within a specified period of six months after becoming that holder, a 90% holder can give a notice of compulsory acquisition setting out a cash price for the minority securities: see ss 664AA(6), 664C(1). The price must only be cash and not differentiate between minority holders: see s 664B. No benefit outside the price formally notified can be offered to any individual holder at any time: see s 664D. Under the statutory regime, minority holders are entitled to object to the acquisition: see s 664E. Where persons who hold at least 10% of the minority securities object to the acquisition then the acquisition can proceed only if the court gives approval: see ss 664F, 664A(3)(b). The court must approve the acquisition if the 90% holder establishes that the terms set out in the notice "give a fair value for the securities": see s 664F(3). Where fair value is not established the court must confirm that the acquisition will not take place: see s 664F(3). 18 Subsequent decisions have indicated that there are essentially three principal matters that an applicant under s 664F must address: see, eg, BG & E Management Pty Ltd v de Aboitiz [2016] FCA 1368. These are: (a) standing - is the applicant a 90% holder?; (b) compliance with procedural requirements - has the 90% holder complied with the requirements of Pt 6A.2?; and (c) fair value - do the terms of the compulsory acquisition notice offer a fair value for the outstanding securities? 19 A number of cases have discussed the sense in which the expression "fair value" is used in s 667C: see, eg, Capricorn Diamonds at [58], [62], [63], [65], [66], [72], [75]; Teh v Ramsay Centauri Pty Ltd (2002) 42 ACSR 354 at [11], [23], [27].

The application 20 By its amended originating process dated 27 April 2018, Ijack seeks declarations and orders to the following effect: (a) a declaration that the terms set out in the notice of compulsory acquisition dated 26 February 2018 relating to the income class shares give a fair value for the securities that are the subject of the notice; (b) an order that the Court approves the acquisition of the income shares by Ijack on the terms set out in the relevant acquisition notice, pursuant to s 664F of the Corporations Act; and (c) an order that the time for Ijack to comply with ss 666A(1)(b) and 666B(1) of the Corporations Act in respect of the preference shares be extended pursuant to s 1322(4)(d) of the Corporations Act. 21 In support of the application, Ijack relies on: (a) four affidavits of Mr Veall; (b) an independent expert report dated 21 February 2018 prepared by Deloitte Corporate Finance Pty Limited (the Deloitte Report); (c) a supplementary letter dated 11 May 2018 provided by Deloitte Corporate Finance Pty Limited (the Supplementary Deloitte Report); (d) a valuation report in respect of the Mount Martha Property prepared by Charter Keck Cramer dated 19 January 2018 (the CKC Report); (e) a supplementary report prepared by Charter Keck Cramer dated 18 July 2018 (the Supplementary CKC Report); (f) an affidavit of Shirley Veall; and (g) an affidavit of Martin Veall. 22 The principal author of the Deloitte reports was Tapan Parekh. The principal author of the CKC valuations was Bradley Papworth. 23 In opposition to the application (insofar as it concerns the income shares), the defendants rely on: (a) a report dated 11 July 2018 prepared by Darren Hockley of the firm, Grant Thornton (the Hockley Report); (b) a supplementary report dated 7 August 2018 prepared by Mr Hockley (the Supplementary Hockley Report); (c) a valuation report in respect of the Mount Martha Property prepared by Opteon Property Group Pty Ltd dated 27 July 2018 (the Opteon Report); (d) a supplementary valuation report prepared by Opteon Property Group Pty Ltd dated 2 August 2018 (the Supplementary Opteon Report); and (e) an affidavit of Sanin Pasagic, of the defendant's solicitors, sworn 3 August 2018. 24 The principal author of the Opteon reports was Mark Holland. 25 In addition, joint reports were prepared by the two experts who deal with fair value issues (Mr Parekh and Mr Hockley) and by the two land valuation experts (Mr Papworth and Mr Holland). 26 At the hearing of the application, the following witnesses were cross-examined: Mr Veall; Mr Papworth; Mr Holland; Mr Parekh; and Mr Hockley. I accept the evidence of Mr Veall. I discuss the evidence of the experts later in these reasons. 27 The defendants oppose Ijack's application (insofar as it relates to the income shares) on the following two grounds: (a) Ijack has not discharged its onus of proof that it and its related bodies corporate hold full beneficial interests in at least 90% by value of the securities in Vealls; and (b) Ijack's offered price of $0.57 per income share, as set out in the relevant compulsory acquisition notice, does not give fair value for the income shares the subject of the notice. 28 As noted above, the three principal matters that an applicant under s 664F must address are: standing; compliance with procedural requirements; and fair value. Each of these matters will be considered in turn. (For reasons explained above, these matters are to be considered in relation to the proposed compulsory acquisition of the income shares; it is not necessary to consider these matters in relation to the capital shares or the preference shares.)

Standing 29 In order to have standing, Ijack must have been a 90% holder under s 664A(1) or 664A(2) when it issued the compulsory acquisition notice in relation to the income shares (27 February 2018), and it must have issued the notice within the time prescribed by s 664AA.

90% holder 30 Ijack contends that it was a 90% holder in relation to the income shares under s 664A(2) (rather than s 664A(1)). The three requirements of s 664A(2) as applied to the present case are: (a) the securities in the class (ie, the income shares) were shares or convertible into shares; (b) Ijack's voting power in Vealls was at least 90%; and (c) Ijack held, either alone or with a related body corporate, full beneficial interests in at least 90% by value of all the securities of Vealls that were shares or convertible into shares. 31 There is no issue in relation to the first requirement. 32 In relation to the second requirement, s 9 of the Corporations Act provides that "voting power" in a body or managed investment scheme has the meaning given in s 610. Section 610(1) provides as follows: A person's voting power in a designated body is: Person's and associates' votes × 100 Total votes in designated body

where: person's and associates' votes is the total number of votes attached to all the voting shares in the designated body (if any) that the person or an associate has a relevant interest in. total votes in designated body is the total number of votes attached to all voting shares in the designated body. Note: Even if a person's relevant interest in voting shares is based on control over disposal of the shares (rather than control over voting rights attached to the shares), their voting power in the designated body is calculated on the basis of the number of votes attached to those shares. 33 Ijack submits, and I accept, that Shirvell Pty Ltd (Shirvell), Farex Pty Ltd (Farex) and Winmardun Pty Ltd (Winmardun) were associates of Ijack. This is because Ijack and those companies had a common holding company, St Columb Ltd: see s 12(2)(a)(iii) of the Corporations Act. 34 Including these associates, Ijack's voting power was as follows: Ijack and associates Votes per share Total Ijack and associates' votes Total available votes Total voting percentage Capital 7,903,890 2 15,807,780 16,037,716 98.56% Income 1,954,699 0.2 390,940 555,022 70.44% Preference 0 4 0 161,896 - TOTAL - - 16,198,720 16,754,634 96.69%

35 Accordingly, Ijack's voting power in Vealls was at least 90%. 36 The third requirement of s 664A(2) is that Ijack held, either alone or with a related body corporate, full beneficial interests in at least 90% by value of all the securities of Vealls that are shares or convertible into shares. Evidence in support of this requirement is included in the Deloitte Report and the Supplementary Deloitte Report. 37 As noted above, Ijack, Shirvell, Farex and Winmardun all share the same ultimate holding company - St Columb Ltd. For that reason, those four companies are related bodies corporate within the meaning of s 50 of the Corporations Act. 38 Ijack submits, on the basis of the valuation in the Deloitte Report, that Ijack and its related bodies corporate hold shares in Vealls valued as follows: "Fair value" as determined by Deloitte Capital $14.47 Income $0.52 Preference $0.10 TOTAL Value of shares on issue $116,032,875 $1,443,056 $4,047 $117,479,978 Ijack $101,290,000 - Shirvell $709,706 Farex $306,737 - Winmardun $13,079,288 - TOTAL $114,369,288 (98.57%) $1,016,443 (70.44%) - $115,385,731 (98.22%)

39 Insofar as these figures rely on the fair value figures in the Deloitte Report, that report provides an appropriate basis to proceed for the purposes of determining whether Ijack was a 90% holder in relation to the income shares. I refer to the reasons set out below in relation to the "fair value" issue. Insofar as there is a difference of view as to the valuation of the Mount Martha Property, which may affect the value of the company as a whole and thus the fair value of the capital shares, this would not appear to be of sufficient magnitude to reduce the percentage in the above table to below 90%. 40 The defendants contend that it is not established that Ijack and the related bodies corporate hold full beneficial interests in the shares in Vealls. In response to this contention, Ijack filed some additional evidence, namely a fourth affidavit of Mr Veall, and affidavits of Shirley Veall and Martin Veall. In his fourth affidavit, Mr Veall states that he is the company secretary of each of Ijack, Shirvell, Farex and Winmardun, and that he is also one of two directors of Farex. Mr Veall states that, based on his own knowledge as company secretary and confirmed by his discussions with his mother, Shirley Veall, as sole director in each case, he believes that each of Ijack, Shirvell and Winmardun holds all of its shares in Vealls both legally and with full beneficial interest. Mr Veall also states that, based on his own knowledge as company secretary and as a director and confirmed by his discussions with the other director, his brother Martin Veall, he believes that Farex holds all of its shares in Vealls both legally and with full beneficial interest. The affidavits of Shirley Veall and Martin Veall are to the same effect. In light of this evidence, I accept that Ijack and the related bodies corporate hold full beneficial interests in the shares in Vealls. In my view, it is not necessary for this to be established by documentary evidence, such as financial reports, as submitted by the defendants. Further, I do not accept the defendants' submission that an adverse inference should be drawn from the absence of documentary evidence on this point. In circumstances where witnesses gave evidence on the issue, as outlined above, it was unnecessary for Ijack to provide additional evidence by way of documentary evidence. 41 For these reasons, Ijack held, together with its related bodies corporate, full beneficial interests in at least 90% by value of all the securities of Vealls that were shares or convertible into shares. It follows that Ijack was a 90% holder in relation to the income shares within the meaning of s 664A(2).

Timing 42 Section 664AA relevantly provides that a 90% holder seeking to compulsorily acquire a class of securities must lodge a notice of compulsory acquisition with ASIC within six months after the date on which the 90% holder became a 90% holder in relation to that class. 43 As Ijack and its related bodies corporate rely upon s 664A(2) to be a 90% holder in respect of Vealls' income shares, the relevant date is six months after Ijack and its related bodies corporate satisfied each of the requirements of s 664A(2)(b) and (c). 44 As to s 664A(2)(b), during the course of the on-market buy-back announced on 10 November 2017, Ijack's and its related bodies corporate's voting position in respect of Vealls increased. By 24 November 2017, 481,478 capital shares had been bought back, resulting in a change to voting power such that Ijack's voting power increased to over 90%. 45 As to s 664A(2)(c), it appears that this requirement was satisfied either on or about 24 November 2017 or on or about 30 November 2017. 46 The compulsory acquisition notices were lodged with ASIC on 27 February 2018, three months and three days after 24 November 2017, the earliest possible date when Ijack became a 90% holder in relation to the income shares. Accordingly, the notices were lodged within the six months allowed by s 664AA(b) of the Corporations Act.

Compliance with procedural requirements 47 The provisions of Pt 6A.2 contain a number of procedural requirements that a prospective compulsory acquirer must comply with. These are set out in ss 664B, 664C, 664E and 664F(2). In this case, each of those requirements has been complied with.

Fair value 48 If Ijack establishes that the terms set out in the compulsory acquisition notice relating to the income shares give a fair value for those shares, the Court must approve the acquisition: s 664F(3). 49 I will first outline the evidence of the fair value experts (Mr Parekh and Mr Hockley). I will then outline the evidence of the land valuation experts. I will then set out my conclusion and reasoning in relation to the fair value issue. 50 The fair value experts agree that: (a) the relevant date for assessing the fair value of Vealls' income shares is 27 February 2018; (b) the basis for determining fair value is the test in Spencer v Commonwealth (1907) 5 CLR 418; (c) accounting standard APES 225 (entitled "Valuation Services") applies; and (d) the Vealls' income shares were illiquid. 51 In the Deloitte Report, for the purposes of valuing Vealls as a whole, an asset based approach assuming orderly realisation was considered to be the most appropriate methodology. Three reasons were expressed for adopting this approach: (a) this approach achieves the highest value for the company's net assets, as it assumes an orderly realisation of assets rather than realisation via a liquidation or forced sale approach, which typically results in lower prices being realised; (b) net assets on a 'going concern' basis would require the recognition of ongoing operating costs without any offsetting income due to the unrelated nature of the assets and the passive nature of their holding; accordingly, "this would result in a lower value"; and (c) the assets are unrelated and do not present an opportunity for value improvement through active management or integration into a business formation. 52 The Deloitte Report stated that the adopted method "estimates fair value by determining the amount that would be distributed to shareholders, after payment of all liabilities including realisation costs and taxation charges that arise, assuming the entity is wound up in an orderly manner". 53 On this basis, the value of 100% of the equity in Vealls was assessed to be in the order of $116.1 million to $118.9 million. 54 The next step in the Deloitte Report (reflecting the steps set out in s 667C) was to allocate the net realisable value for the company as a whole among the classes of shares. It was stated that, consistently with the valuation methodology that had been adopted (orderly realisation), the value of each share class was determined by allocating the assessed value of 100% of the equity of Vealls across each share class "in accordance with their wind-up entitlement under the Constitution". An amount was first allocated to preference shares. Next, an amount was allocated to income shares, namely $344,000 for paid up capital and an additional 40 cents per share (being an amount payable under the Constitution on a winding up). This produced a total amount of $1,454,000 for income shareholders, or $0.52 per share. Lastly, the balance of the net realisable value was allocated to capital shareholders. 55 On this basis, Deloitte expressed the opinion that "the terms proposed in the Compulsory Acquisition Notice give a fair value for each share class". In relation to the income shares, the Deloitte valuation was $0.52, while the offer price was $0.57. 56 It is convenient to note that in an independent expert report dated 6 November 2017, prepared in connection with the buy-back, PwC had valued the income shares at $0.52, adopting a substantially similar approach. 57 In the course of the Deloitte Report, reference was made to recent share trading (see page 7). In relation to the income shares there was only one trade in the six months prior to 27 February 2018, at a price of approximately $1.50 per share. Later in the report, under the heading "Cross check", it was stated that the income shares were illiquid, with only 0.9% of income shares traded in the last six months. It was also stated that "whilst the income shares appear to currently be priced on the basis of yield (circa. 7%), the recent shift in Vealls' asset base towards low yielding investments (i.e. cash) calls into question the sustainability of the historical dividend levels and therefore the share price". 58 The Supplementary Deloitte Report relates to the standing issue and can be put to one side for present purposes. 59 The Hockley Report contains Mr Hockley's responses to a series of questions. Mr Hockley stated that he did not consider the values ascribed in the Deloitte Report to be the fair value of Vealls as a whole or the income shares. In Mr Hockley's view: (a) the company and the income shares should be valued on a going concern basis, consistent with the disclosures in the company financial reports; (b) the Deloitte Report did not have regard to alternative valuation methodologies applicable to minority shareholders that receive regular and consistent dividends, such as a future maintainable dividends valuation methodology; and (c) a review of other factors strongly supported the proposition that Deloitte's valuation of the income shares did not reflect fair value, including: lack of acceptance of the buy-back offer by income shareholders; implied dividend yield of the Deloitte value; and historical dividend payments. 60 Mr Hockley expressed the view that a capitalisation of future maintainable dividends valuation methodology, applying the Gordon Dividend Growth Model, was most appropriate in determining the fair market value of the income shares. He stated that this required estimation of three key factors: the future dividend expectations; the rate of return; and the future growth of dividends. Assuming that both dividend expectations and dividend growth were based on historical dividend levels, Mr Hockley concluded that the fair value of the income shares was in the range of $1.29 to $1.46. 61 In the Supplementary Hockley Report, Mr Hockley addressed a number of questions relating to the Opteon Report. 62 Mr Parekh and Mr Hockley provided additional reasons for their views in the joint report and in their oral evidence at the hearing. I have had regard to this evidence and refer to some of it below. 63 I turn now to the land valuation evidence. The land valuation experts (Mr Papworth and Mr Holland) agree as to the particulars of the subject land and the valuation date. 64 The CKC Report was based on an inspection and valuation as at 8 January 2018. It valued the Mount Martha Property at $18.5 million. 65 Under the heading "Planning Approvals", the report stated: Discussions with Council indicate there are no active planning permits or planning permit applications relating to the subject property. Our discussions with the Planning Consultant for Vealls Ltd indicate discussions are occurring with Council in relation to rezoning the land for conventional residential development. 66 Through no fault of Mr Papworth, this statement was incorrect. Mr Papworth was not briefed with all relevant material by Ijack and its planning consultant, Tract Consultants Pty Ltd (Tract). In fact, on 24 October 2017, Tract, on behalf of V.L. Investments Pty Ltd, had submitted to the Mornington Peninsula Shire Council in relation to the Mount Martha Property, a combined: application to amend the Mornington Peninsula Planning Scheme; planning permit application for the subdivision of land and removal of native vegetation under the Planning and Environment Act 1987 (Vic); and application for 'land swap' pursuant to the Local Government Act 1989 (Vic). The proposal sought planning approval for the subdivision of the land to facilitate the development of the land for residential purposes. It was proposed to subdivide the land to create 200 residential allotments. 67 In the Supplementary CKC Report, Mr Papworth responded to a series of questions relating to this additional material. In response to a question whether the CKC Report had accounted for the rezoning proposal, Mr Papworth responded: "No. My valuation report dated 19 January 2018 was based on the highest and best use of the land as a low density residential development with potential for conventional residential development upon rezoning." In response to a question whether the rezoning proposal would have changed his opinion as to value, Mr Papworth responded that the combined request for rezoning and planning application may have changed his opinion of value. Mr Papworth explained that he was not provided with this information at the time of preparing the CKC Report. Mr Papworth was not asked to, and did not, provide a revised valuation of the property in the Supplementary CKC Report. 68 The Opteon Report was based on an inspection and valuation as at 26 July 2018. It provided valuations on a number of different scenarios, as follows: (a) value with immediate potential for sale of existing allotments - $24,735,000; (b) value with immediate potential for sale of allotments fronting existing roads - $23,550,000; and (c) value with potential of obtaining a rezoning and a permit for a higher form of development such as that proposed by Tract - $26,400,000 and possibly as high as $30 million. 69 The Opteon report took into account the combined application to amend the planning scheme and planning permit application described above. 70 Mr Papworth and Mr Holland provided further evidence and reasoning in support of their views in their joint report and in their oral evidence during the hearing. I have had regard to this evidence. 71 In my view, for the reasons that follow, Ijack has established that the terms set out in the compulsory acquisition notice relating to the income shares give a fair value for the income shares for the purposes of ss 664F(3) and 667C. 72 First, the critical issue in considering fair value in the present case concerns the method by which Deloitte allocated the value of the company as a whole among the classes of shares (being the second step set out in s 667C(1)) rather than the method by which Deloitte valued the company as a whole (being the first step in s 667C(1)). This is because the method of allocating value among the classes, insofar as this related to the income shares, was to allocate an amount for paid up capital ($344,000) and an additional 40 cents per share (being an amount payable under the Constitution on a winding up). On this approach, whether the value of the company as a whole was in the order of $116.1 million to $118.9 million (as determined by Deloitte) or a higher figure would not affect the amount allocated to the income shareholders. 73 Secondly, although the value of the company as a whole is not, for the reasons given above, the critical issue, it is important to note the distinction drawn by Mr Parekh between the premise of his valuation of the company as a whole and the methodology of valuation he adopted. Although this may not have been clear from the Deloitte Report, Mr Parekh clarified in the joint report and in his oral evidence that he drew a distinction between these two aspects; the premise of his valuation approach was that the company would continue as a going concern, while the methodology was an asset based approach assuming orderly realisation. One of the reasons for adopting this methodology, Mr Parekh explained, was that alternative approaches would result in a lower value. I accept Mr Parekh's evidence as summarised in this paragraph, and generally. 74 It is also relevant to note, in relation to the value of the company as a whole, that the Hockley Report does not provide a value for the company as a whole. Accordingly, the only value for the company as a whole contained in the material before the Court is that presented in the Deloitte Report. 75 The defendants submit that, contrary to the impression sought to be created by Mr Veall in his affidavits, Vealls is plainly developing a share trading business in a Singapore hub. This may be accepted. But once the distinction outlined in [73] above is appreciated, this does not provide a basis for doubting Mr Parekh's valuation of the company as a whole. 76 The defendants also submit that, contrary to the impression sought to be created by Mr Veall (and adopted by Deloitte) as to the passive nature of the assets held by Vealls, including the land, the company has since at least 2015 commenced and continues to conduct the business of developing the land in the sense of attempting to achieve a rezoning and subdivision of the land and otherwise enhance its value before putting it out to tender. However, I accept the evidence of Mr Veall during cross-examination as follows: "We're not looking to being a property developer or developing the land. We're looking for a zone change and then sell to a developer". In light of this evidence, the company's activities in relation to the Mount Martha Property do not call into question the approach taken by Deloitte in valuing the company as a whole. 77 Thirdly, while I have some concerns about the reasoning in relation to allocation of value among classes contained in the Deloitte Report, these concerns are addressed in the further evidence of Mr Parekh in the joint report and in the evidence he gave during the hearing. In the Deloitte Report, the reason given for the adopted allocation methodology was that this was consistent with the basis upon which the company as a whole had been valued (orderly realisation). This reasoning did not directly address the matters referred to in s 667C(1)(b), namely the relative financial risk, and voting and distribution rights, of the classes. However, additional reasoning was provided by Mr Parekh in the joint report. (The joint report contains comments provided separately by Mr Parekh and Mr Hockley.) At [18] of the joint report, Mr Parekh detailed the rights and entitlements of the classes under the Constitution. In particular, he noted the following: (a) In relation to the voting rights: income shareholders collectively as a class have 3.3% of the voting rights of the company; income shareholders cannot veto any decision by the other shareholders (being those holding preference shares or capital shares) to reorganise or recapitalise the company; and income shareholders cannot singularly or collectively elect or change the directors of the company and do not have a representative on the board of directors of the company. (b) In relation to dividend entitlements: dividends to income shareholders are proposed by, and are at the discretion of, the directors of the company; the company is not obliged to pay dividends on the income shares; there is no minimum dividend that must be paid on the income shares each year and the rights are non-cumulative (in other words, the income shares do not have the entitlements often associated with preference shares); and while income shares must receive a dividend in priority to capital shares, there is no minimum dividend that must be paid to income shareholders before a dividend is declared to capital shareholders. (c) In the event of a winding up of Vealls, preference shareholders are first entitled to their paid up capital plus accumulated preferred dividends. The income shareholders are then entitled to a repayment of their paid up capital and an additional 40 cents per share in priority to any repayment on the capital shares. The capital shares are entitled to the surplus capital of the company. 78 Mr Parekh also noted, at [18] of the joint report, that on 7 February 2018 Vealls announced that no dividend would be declared for the six months ended 31 December 2017; there has been no announcement since that date as to when dividends on the income shares will next be proposed. 79 In [22] of the joint report, Mr Parekh referred to s 667C(1)(b) and stated that the relative financial risk, and voting and distribution rights, of the classes were summarised in [18] of that report. Mr Parekh stated that he considered the value that he had attributed to income shareholders accorded with the rights of those shares under the company's constitution, complied with s 667C(1)(b), and represented the maximum value to which the income shareholders were entitled. 80 In his oral evidence during the hearing, Mr Parekh was asked why, at the stage of allocating value to the classes of shares, he looked at the rights of the different classes on a winding up. In the course of his response, he said that he "effectively formed the view that the value of income shares can only be maximised through … use of that approach". 81 In light of the above, I am satisfied that the method adopted in the Deloitte Report for allocating the value of the company as a whole among the classes of shares takes into account the financial risk, and voting and distribution rights, of the classes (as required by s 667C(1)(b)). 82 Fourthly, I do not consider the approach taken by Mr Hockley to provide an appropriate method of allocating the value of the company as a whole among the classes of shares for the purposes of s 667C(1)(b). Significant changes have occurred in recent years to the business operations of Vealls. In particular, in 2013 it sold a ski field located on the South Island of New Zealand and, in April 2017, it sold a forest in France. Following these asset sales, Vealls holds some shares, the Mount Martha Property and cash. It is true that Vealls has, until recently, continued to pay dividends on the income shares. It is also true that the company is likely to continue as a going concern. Nevertheless, in circumstances where there have been significant changes to the company's business operations, I do not consider the historical dividends paid by the company to provide a reliable guide to future dividends. 83 Further, the methodology set out in s 667C(1) would appear to be designed to avoid a premium or a discount being applied to a minority stake in a company. This is sought to be avoided by valuing the company as a whole and then allocating that value among the classes of shares, having regard to the matters set out in s 667C(1)(b). Mr Hockley's approach, which involved valuing the income shares directly (rather than commencing with the value of the company as a whole and then allocating that value among the classes of shares, having regard to the matters in s 667C(1)(b)), does not reflect the statutorily mandated methodology. 84 I note that Mr Hockley stated that the non-acceptance of the buy-back by income shareholders may have highlighted the need for Deloitte to reconsider their valuation opinion. However, this is only one factor to be considered in determining fair value. As noted by Mr Parekh in the joint report, it needs to be viewed in the context of the fact that there has been no trading in the income shares since the buy-back announcement and the lack of liquidity for the income shares. 85 Fifthly, it is necessary to take into account the consideration paid for income shares within the previous six months: s 667C(2). While the Deloitte Report does not address this matter in terms, it is effectively taken into account in the Deloitte Report and is also addressed by Mr Parekh in the joint report. In the Deloitte Report, reference was made to recent share trading (at page 7) and, later in the report, under the heading "Cross check", it was stated that the income shares were illiquid, with only 0.9% of income shares traded in the last six months. It was also stated that the recent shift in Vealls' asset base towards low yielding investments (ie, cash) called into question the sustainability of the historical dividend levels and therefore the share price. In 18 of the joint report, Mr Parekh stated that: the last trade in the income shares occurred on 7 November 2017; on that date, 6,000 income shares representing 0.2% of the income shares on issue were acquired by one of the objectors; and that was the only trade in the six months prior to 27 February 2018. Mr Parekh also stated (at [22]) that there was no liquidity in the trading of income shares from which income shareholders could realise the value of their income shares on-market. In light of this evidence, I am satisfied that the matter referred to in s 667C(2) has been taken into account by Mr Parekh in forming his view as to fair value. 86 Sixthly, while there is a difference of view between the land valuation experts as to the valuation of the Mount Martha Property, it is unnecessary to resolve this difference for the purposes of the fair value issue. While the valuation of the Mount Martha Property affects the value of the company as a whole, for the reasons discussed above the critical issue is the methodology adopted for allocating the value of the company as a whole among the classes of shares. In these circumstances, it is unnecessary to resolve the difference of view between the land valuation experts. Although I have concluded that it is unnecessary to determine this issue, the Court has been assisted by the defendants obtaining a copy of the combined application to amend the planning scheme and planning permit application in relation to the Mount Martha Property. 87 In light of the above, I accept the opinion of Mr Parekh that the terms proposed in the compulsory acquisition notice in relation to the income shares give a fair value for the income shares. Accordingly, Ijack has established that the terms set out in the compulsory acquisition notice in relation to the income shares give a fair value for the income shares.

Conclusion in relation to the income shares 88 It follows from the above that I will approve the acquisition of the income shares on the terms set out in the compulsory acquisition notice for those shares. I will make a declaration and orders substantially in the terms sought by Ijack in relation to the compulsory acquisition of the income shares.

Preference shares 89 In relation to the preference shares, the relevant circumstances are summarised in [10] above. I am satisfied that no substantial injustice has been or is likely to be caused to any person (see s 1322(6)). In these circumstances, I consider it is appropriate to make an order pursuant to s 1322(4)(d) extending the time for Ijack to comply with ss 666A(1)(b) and 666B(1) of the Corporations Act in respect of the preference shares that were the subject of the compulsory acquisition notice relating to the preference shares to 24 April 2018.

Costs 90 In relation to costs, s 664F(4) provides that the 90% holder must bear the costs that a person incurs on legal proceedings in relation to the application unless the Court is satisfied that the person acted improperly, vexatiously or otherwise unreasonably. Ijack indicated that it sought the opportunity to make submissions to the effect that it should not have to pay the defendants' costs in relation to one aspect of their preparation of the case. Accordingly, I will provide for the parties to file short written submissions on costs. I propose to deal with this issue 'on the papers'. I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.

SCHEDULE OF PARTIES VID 415 of 2018 Defendants Fourth Defendant: JAMES GORDON MAXWELL MOFFATT Fifth Defendant: COMMON SENSE INVESTMENTS PTY LTD (ACN 004 743 211) Sixth Defendant: CRISTINA WASILEWICZ Seventh Defendant: ELIZABETH DOROTHY LEWIS Eighth Defendant: LEON MAXIM TIREL Ninth Defendant: BALCOME GRIFFITHS PTY LTD (ACN 006 147 968) Tenth Defendant: JOHN ARTHUR FIELDING Eleventh Defendant: KIM KENDALL Twelfth Defendant: JOHN PHILLIP LINQUIST Thirteenth Defendant: CREAG DHUBH PTY LTD (ACN 008 409 185) Fourteenth Defendant: KYLENET PTY LTD (ACN 003 334 423) Fifteenth Defendant: YVONNE LORRAINE TINK Sixteenth Defendant: HELEN WATSON