By Originating Process filed on 6 August 2024 the Plaintiff, APM Human Services International Ltd ("APM"), sought an order that it convene a meeting of its shareholders other than Excluded Shareholders (as defined) in respect of a proposed scheme of arrangement and associated orders. At the first Court hearing in these proceedings on 14 August 2024, I made orders that APM convene that meeting for the reasons set out in my judgment in Re APM Human Services International Ltd [2024] NSWSC 1095 ("First Judgment").
By way of background, APM is an international health and human services provider which is listed on Australian Securities Exchange ("ASX") and operates in some eleven countries, delivering employment, health and well-being, communities and assessment and disability and aged care support services. On 3 June 2024, APM announced to ASX that it had entered into a scheme implementation deed ("SID") with Ancora BidCo Pty Ltd ("Ancora BidCo"), which is a wholly owned indirect subsidiary of funds managed and advised by Madison Dearborn Partners LLC ("MDP"). The SID provides for Ancora BidCo to acquire all of the issued share capital of APM (other than shares already held by Ancora BidCo's affiliates) by a scheme of arrangement. The proposed scheme provides for a cash consideration of $1.45 per APM share or, alternatively, options for APM shareholders to receive either 90% of the consideration in unlisted shares in an intermediate holding company ("Ancora TopCo") and the remaining 10% as cash consideration, or all of the consideration in unlisted shares in Ancora TopCo instead of cash. The scrip alternative is subject to a Scaleback Mechanism (as defined in the SID) which applies to both the all scrip and mixed consideration alternatives, with the result that the total number of scheme shares for which scrip consideration is paid will not exceed 65% of the total scheme shares. If the Scaleback Mechanism applies, APM shareholders who had made a valid election to receive the scrip alternative will receive cash consideration instead of shares in Ancora TopCo for their relevant proportion of scheme shares. If APM shareholders do not elect to receive either the cash consideration or one of the scrip alternatives, they will receive the cash consideration by default.
The proposed scheme as subject to conditions precedent including that APM shareholders (other than Excluded Shareholders) pass a resolution for the purposes of item 7 of s 611 of the Corporations Act 2001 (Cth) ("Act") approving the transfer of the APM shares held by each Excluded Shareholder to Ancora TopCo (to be subsequently transferred on to Ancora BidCo) on implementation of the scheme ("Item 7 resolution"). The scheme would only proceed if the Item 7 resolution was passed by the required voting majority, 50%, of APM shareholders. Another condition precedent to the scheme was that Key Rolling Shareholders (as defined in the SID) including APM's Executive Chair, Ms Wynne, and her related parties, the Group Chief Executive Officer, Mr Michael Anghie, and key management personnel, elect to receive the all scrip consideration for all of their scheme shares ("Rollover Condition"). It is proposed that APM will delist from the ASX following implementation of the scheme.
The scheme meeting was held on 18 September 2024 and APM shareholders approved the scheme by a majority in number of APM shareholders present and voting and by more than 75% of the votes cast, with 513,941,680 votes (99.94%) in favour of the scheme and 327,709 votes (0.06%) against and 404 shareholders present and voting in favour of the scheme (91.82%) and 36 shareholders (8.18%) voting against.
At the second Court hearing, APM now seeks orders approving the scheme. I made those orders at the conclusion of the second Court hearing on 25 September 2024. These are my reasons for making those orders, and I have drawn on the helpful submissions of Mr Williams, with whom Ms Ng appears for APM, in this judgment.
[3]
Affidavit evidence
APM now reads the affidavit dated 18 September 2024 of Mr Neville Power ("Second Power Affidavit") which addresses the registration of the scheme booklet and lodgement of a copy of the convening orders with the Australian Securities & Investments Commission ("ASIC"); explains that in accordance with section 7.2 of the scheme booklet, Ancora BidCo has determined that it is lawful and, having consulted with APM, is not unduly onerous or impractical to offer and/or issue Ineligible Foreign Shareholders (as defined in the SID) in certain jurisdictions with shares in Ancora TopCo; confirms despatch of the scheme materials to APM shareholders as required by the "Convening Orders"; confirms that communications with APM shareholders conducted by a third party for APM was in accordance with the inbound or outbound call scripts; indicates that 1,407 "Reminder to Vote" emails were sent to APM shareholders and addresses communications with 133 APM shareholders who had submitted proxy forms in respect of the general meeting only but not the scheme meeting; and confirms the holding of the scheme meeting and the passage of the resolution approving the scheme, both including and excluding the votes of Ms Megan Wynne (the APM Executive Chair and Founder) and her affiliated companies ("Tagged Votes"). Mr Power also addresses voter turnout at the scheme meeting compared to turn out at APM's annual general meetings in 2022 and 2023; addresses the votes of the Key Rolling Shareholders; confirms publication of notice of the second Court hearing by way of an ASX announcement; and confirms the identity of the Excluded Shareholders.
APM also reads a further affidavit dated 24 September 2024 of Mr Power ("Third Power Affidavit") which corrects two paragraphs of the Second Power Affidavit relating to the calculations as to the results of the scheme meeting and voter turnout; confirms that the independent expert's assessment of the scheme did not change following the release of APM's FY24 financial results; confirms that the condition precedent in relation to regulatory approval from the Foreign Investment Review Board was satisfied; and confirms that no notices of appearance from any person in response to the advertisement of the second Court hearing was received by APM's solicitors.
APM also reads an affidavit dated 24 September 2024 of Mr Rodney Somes which proves the voting result at the scheme meeting, if the votes of Key Rolling Shareholders were excluded. APM tenders a conditions precedent certificate which proves satisfaction of the conditions precedent to the scheme, other than the condition relating to Court approval of the scheme and also tenders a letter from ASIC confirming that it has no objection to the scheme, satisfying the requirements of s 411(17) of the Act.
[4]
Applicable principles, submissions and determination
The principles that apply to the role of the Court in approving a scheme of arrangement under s 411(4)(b) of the Act are well established and I summarised them in Re InvoCare Ltd (No 2) [2023] NSWSC 1350 at [8]-[9] as follows:
"The matters of which the Court must be satisfied in approving the scheme at the second Court hearing are whether there was compliance with the orders of the Court convening the scheme meeting or meetings; whether the resolution to approve the scheme was passed by the requisite majority and whether other statutory requirements have been satisfied; and whether all conditions to which the scheme is subject (other than Court approval and lodgement of the Court's orders with ASIC) have been met or waived: Re ELMO Software Ltd (No 2) [2023] NSWSC 81 ("ELMO") at [7].
The Court also has, in exercising its power of approval, a residual discretion whether to approve a scheme and is not bound to approve it merely because it has made orders for the convening of meetings or because the statutory majorities have been achieved: Re Seven Network Ltd (No 3) (2010) 267 ALR 583 ("Seven Network") at [31]; Re Staging Connections Group Ltd (No 2) [2015] FCA 1102 at [12]. In exercising that residual discretion, the (non-exhaustive) matters the Court will take into account include whether the scheme is fair and reasonable so that an intelligent and honest member of the relevant class, properly informed and acting alone, might approve it; whether there was full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme; and 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: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [8]; Seven Network at [35]-[40]; Re Pendal Group Ltd (No 3) [2023] NSWSC 14 at [10]; ELMO at [8]."
Mr Williams submits and the evidence establishes that APM has complied with the Court's orders of 14 August 2024 in respect of the distribution of material in relation to the scheme to APM shareholders.
Mr Williams submits that:
"The Independent Expert has concluded and as at the date of the second Court hearing continues to conclude, that the [s]cheme is fair and reasonable and hence in the best interests of APM [s]hareholders, in the absence of a superior alternative proposal emerging, and the APM [s]hareholders have agreed to the [s]cheme. … it would be an appropriate exercise of the Court's discretion to approve the [s]cheme pursuant to subsection 411(4)(b) of the Act as amended under s 411(6) of the Act, and to make an order providing the exemption sought under subsection 411(12) of the Act (i.e., that there is no need for a Court order approving the Scheme to be annexed to every copy of the [c]onstitution of APM)."
First, I accept that the scheme meeting was held in accordance with the Court's orders at the first Court hearing and, as I noted above, APM shareholders there voted in favour of the scheme by the requisite majorities. The evidence indicates that, as Mr Williams points out, the vote on the scheme resolution would have comfortably the statutory majorities if the Tagged Votes were disregarded. The evidence also indicates that the vote on the scheme resolution would still have comfortably satisfied the statutory majorities if the votes of all the Key Rolling Shareholders (including the Tagged Votes) were disregarded. In the result, the votes of the Key Rolling Shareholders, including Ms Wynne and her affiliates, were not determinative of the outcome of the scheme resolution.
That matter is significant because of an issue addressed in paragraphs 17-18 of my First Judgment. I there noted that this scheme involved the issue of "stub equity" in an intermediate holding company of the acquiring entity. I there accepted that, consistent with earlier case law, the offer of stub equity would not, in itself, warrant the Court declining to convene the scheme meeting, where the scheme booklet contained detailed and prominent disclosure of the risks involved in APM shareholders choosing to receive that stub equity. I went on to observe (at [18]) that:
"… this matter highlights an emerging need for the Court to be alert to the impact of a stub equity structure on voting majorities at the second Court hearing, where it has the consequence that rolling shareholders are not treated as Excluded Shareholders and are permitted to vote on the scheme, although they will retain a continuing indirect shareholding or at least a continuing economic interest in the scheme company following the transaction. A Court may well need to assess, at the second Court hearing, whether a scheme which provides for the exit of other shareholders in exchange for cash has been approved at the scheme meeting largely or entirely by the votes of larger rolling shareholders who retain their economic interest in the scheme company, and target companies may need or wish to tag such votes in order to ensure that sufficient evidence as to that matter is available at that hearing."
I also there accepted Mr Williams' submission that the fact that some scheme shareholders may be in a position to enjoy rights in Ancora TopCo by virtue of the size of their holdings in APM did not mean that they were treated differently under the scheme, where these rights were incidents of a shareholding in Ancora TopCo and no shareholder was required to take up such a shareholding. I also held that this matter was not class creating, although I recognised that that question would depend on the particular treatment of shareholders' rights in any particular case. I again noted (at [20]) that:
"… this matter overlaps with the issue that I noted in paragraph 18 above, and again highlights the possibility that a scheme might be approved at a scheme meeting largely or entirely by the votes of rolling shareholders who obtain such rights."
As I noted above, APM has here led evidence that the scheme would still have been approved by substantial majorities if the votes of all Key Rolling Shareholders (and not only Ms Wynne and her associated entities) had been excluded at the scheme meeting, so the issue noted in my First Judgment does not have any practical significance here. Mr Williams also noted that he expected that scheme companies would generally choose to lead evidence at the second Court hearing as to the result if all related shareholders who took up stub equity had not voted at the scheme meeting. That would plainly be a sensible approach where (as here) it may displace any concern as to the issue noted in paragraph 18 of my First Judgment. The Court would likely only need to determine that issue if that evidence was not led or that evidence disclosed that the scheme would not have been approved by the votes of shareholders excluding those who took up stub equity. It is not necessary to determine that issue here, where APM shareholders other than those who took up stub equity would in any event have approved the scheme by the requisite majorities.
Second, Mr Williams points out that the 514,269,389 votes cast at the scheme meeting (in person or by proxy) by 440 APM shareholders represent approximately 79.43% of all votes able to be cast and approximately 11.25% of the total number of APM shareholders eligible to vote, which is higher than the voting participation rates in APM's most recent annual general meetings (Second Power Affidavit [32]-[34]; Third Power Affidavit [6]-[9]). This matter raises no reason to think that any difficulty has occurred with the distribution of scheme documents to shareholders.
Third, Mr Williams notes that section 7.2 of the scheme booklet disclosed that Ineligible Foreign Shareholders (as defined in the SID) would be deemed to have elected to receive the All Cash Consideration (as defined) regardless of any election, unless Ancora BidCo determined that it was lawful and, after having consulted with APM, not unduly onerous or impractical to provide that shareholder with Ancora TopCo shares when the scheme becomes effective. Mr Williams also refers to Mr Power's evidence (Second Power Affidavit [8]-[10]) that, as I noted above, Ancora BidCo has determined that it was not unlawful, and, having consulted with APM, that it was not unduly onerous or impractical to offer and/or issue shares in Ancora TopCo to those APM shareholders whose registered address was recorded in the APM register as outside Australia other than in respect of those APM shareholders with a registered address recorded in several jurisdictions. This matter gives rise to no reason not to approve the proposed scheme, where shareholders who elected to receive, but cannot receive, the shares in Ancora TopCo on this basis will receive the cash consideration.
Fourth, returning now to the matters relevant to the Court's decision at a second Court hearing, the Court needs to be satisfied that APM has complied with the Court's orders convening the meeting of members, that the meeting of members so convened has approved the scheme with the requisite majorities and that all other statutory requirements have been satisfied. I have referred to the evidence establishing those matters above and I also noted above that each of the conditions precedent to the scheme have been satisfied or waived and ASIC has confirmed that it has no objection to the scheme for the purposes of s 411(17)(b) of the Act.
The Court also needs to be satisfied that the scheme 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. I am satisfied of this matter, where the members of an Independent Board Committee and Ms Wynne and Mr Anghie (with appropriate disclosure of their interests) recommended that APM shareholders vote in favour of the proposed scheme, in the absence of a Superior Proposal (as defined) and subject to the independent expert not withdrawing or adversely changing its conclusion that the scheme was in the best interests of APM shareholders; the independent expert whose report was included in the scheme booklet has here expressed the view that the scheme was fair and reasonable and in the best interests of APM shareholders (other than Excluded Shareholders) in the absence of a superior proposal; and, as I have noted above, APM's shareholders have voted in favour of the scheme by the requisite majorities. There is also no reason to doubt that APM has brought to the Court's attention all matters that could be considered relevant to the exercise of the Court's discretion and that there was full and fair disclosure to members of all information material to the decision whether to vote for or against the applicable scheme. I was otherwise satisfied that the scheme is appropriate for the Court's approval.
Fifth, APM seeks an order amending the scheme under s 411(6) of the Act to identify the Excluded Shareholders by name, consistent with the approach taken in Re Tassal Group Ltd (No 2) [2022] NSWSC 1619 at [12] and the authorities there cited. Sixth, APM also seeks an exemption pursuant to s 411(12) of the Act from compliance with s 411(11) so that a copy of the Court order approving the scheme does not need to be annexed to any copy of APM's constitution that may be issued in the future. An order of this kind is commonly made where, as here, the rights of APM shareholders are not modified by the scheme.
For these reasons, I made the orders sought by APM at the second Court hearing on 25 September 2024.
[5]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 09 October 2024