In the matter of Ardent Leisure Limited trading as Ardent Leisure Limited;... [2018] NSWSC 1990 | Case summary

Supreme Court of NSW|2018-11-28|Before: Black J

Solicitors: Gilbert & Tobin (Plaintiff - both proceedings) File Number(s): 2018/297453; 2018/297537

Background and affidavit evidence

By orders made on 9 October 2018, for the reasons set out in my judgment delivered on 1 November 2018 ([2018] NSWSC 1665) ("Earlier Judgment"), I made orders under s 411 of the Corporations Act 2001 (Cth) convening a meeting of members of Ardent Leisure Limited ("ALL") to consider a scheme of arrangement between ALL and its members ("Part 5.1 Scheme"). I also gave judicial advice under s 63 of the Trustee Act 1925 (NSW) that Ardent Leisure Management Ltd ("ALML"), the responsible entity of the Ardent Leisure Trust ("Trust"), was justified in convening a meeting of unitholders to consider an amendment to the Trust's constitution to facilitate a transfer, under a trust scheme, of all of its units in a manner consistent with the Part 5.1 Scheme ("Trust Scheme").
At a second hearing in respect of the Part 5.1 Scheme and the Trust Scheme on 28 November 2018, I made further orders in the form proposed by ALL and ALML and indicated that I would deliver a judgment setting out my reasons for making those orders. These are my reasons for making those orders. I have drawn on the helpful submissions of Mr Jackman and Mr Williams, who appeared for ALL and ALML, in these reasons.
I set out the background to the proposed Part 5.1 Scheme and the Trust Scheme in the Earlier Judgment and I need not repeat that background. At the second hearing, the Plaintiffs relied on the affidavit dated 22 November 2018 of Mr Gary Weiss, the non-executive chairman and a non-executive director of ALL and ALML, which outlined the conduct of the scheme meeting in respect of ALL and a combined general meeting of holders of units in the Trust and an extraordinary general meeting of ALL and addressed the results of the scheme meeting and that combined general meeting.
The Plaintiffs also relied on the affidavit dated 21 November 2018 of Mr Tapan Parekh, a partner in Deloitte Corporate Finance Pty Ltd ("Deloitte"), who had prepared an independent expert's report which was included in the explanatory memorandum for the schemes. Mr Parekh addressed an error which had emerged in the information provided to him as to the substantial shareholders in ALL. Deloitte issued a revised independent expert's report which corrected that error on 11 November 2018 and Mr Parekh confirmed that the changes in respect of that information did not cause him to change his opinions as set out in the independent expert's report.
The Plaintiffs relied on the affidavit dated 21 November 2018 of Mr Warren Flood, an account manager with the company that was responsible for printing services in respect of the securityholder booklet. The Plaintiffs also relied on an affidavit dated 22 November 2018 of Mr Aaron Calder, who is a senior client relationship manager at Link Market Services Ltd. That affidavit dealt with the maintenance of the shareholders' register in ALL and the steps taken in respect of the despatch of a securityholder booklet and personalised proxy forms in respect of the meetings to securityholders in ALL, and also addressed additional mailouts that had occurred as new securityholders acquired the relevant securities. Mr Calder also addressed the receipt and recording of proxy votes in respect of the scheme meetings, attendance at the scheme meetings, and voting at the scheme meeting of ALL and a combined general meeting at which resolutions in respect of the Trust were put.
An affidavit dated 27 November 2018 of Mr Adam D'Andreti, a partner in the firm of solicitors acting for the Plaintiffs, addressed the registration of the explanatory memorandum with the Australian Securities and Investments Commission ("ASIC"), the despatch of the explanatory memorandum, the treatment of performance rights to which reference was made in the Earlier Judgment, and the publication of an advertisement of this hearing. Mr D'Andreti indicated that his firm had not received any notice of appearance of any securityholders in response to that advertisement and no securityholder appeared at the second hearing to seek to oppose the schemes.
An affidavit dated 27 November 2018 of Ms Alexandra Meade, a solicitor in that firm, referred to steps taken in respect of the correction of the independent expert's report, to which I referred above, and to ASIC's indication that it did not propose to re-register the scheme booklet, after that correction. It appears that nothing turned on ASIC's position in that respect, where ASIC did not oppose the approval of the Part 5.1 Scheme or the further advice sought in respect of the Trust Scheme at the second hearing.

Approval of the Part 5.1 Scheme

As Mr Jackman and Mr Williams submit, at the second court hearing to approve a scheme under s 411 of the Corporations Act, the Court must be satisfied that the relevant procedural requirements have been satisfied and exercise a discretion as to whether or not to approve the scheme. In deciding whether to give such approval to a scheme of arrangement, the Court will typically wish to be satisfied that the orders of the Court convening the meeting of members were complied with; that the meeting of members has approved the scheme with the requisite majority; all other statutory requirements have been satisfied; 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; the plaintiff has brought all matters that could be considered relevant to the exercise of the Court's discretion to its attention; and there was full and fair disclosure to members of all information material to the decision whether to vote for or against the applicable scheme: Re Permanent Trustee Co Limited [2002] NSWSC 1177; (2002) 43 ACSR 601 at [8]-[10]; Re Central Pacific Minerals NL [2002] FCA 239 at [8]-[14]; Re Seven Network Limited (No 3) [2010] FCA 400; (2010) 77 ACSR 701 at [35]-[39]; Re Westfield Corporation Limited (No 2) [2018] NSWSC 921 at [7].
Mr Jackman and Mr Williams submit that, subject to two matters arising from the evidence to which I referred above, the scheme booklet as despatched to securityholders on 19 October 2018 was substantially in the form of the document approved by the Court for despatch (D'Andreti 27.11.18 [11]; Calder 22.11.18 [15]-[16]). The first of those matters is that, as I noted above, an error was identified in the list of substantial securityholders in ALL set out in Table 2 in section 4.2 of the independent expert report, after the Court had approved the convening of the scheme meeting. I am satisfied that that error did not affect the expert's conclusion (Parekh 21.11.18 [4]-[6]; D'Andreti 27.11.18 [11(b)]). ASIC was notified of the error at the time although it chose not to re-register the explanatory statement in a form that corrected that error (Meade 27.11.18 [5]-[7]). As Mr Jackman and Mr Williams recognise, this error, and the fact that ASIC did not re-register the scheme booklet in its corrected form, had the result that the scheme booklet as despatched to securityholders differed (as to the listing of substantial securityholders in Table 2 in Section 4.2 of the independent expert's report) from the version registered with ASIC, giving rise to a potential non-compliance with s 412(6) of the Corporations Act. Mr Jackman and Mr Williams submit, and I accept, that this matter is not of a nature that should cause the Court to decline to approve the Part 5.1 Scheme.
Second, following the initial despatch of the scheme booklet, it emerged that an error had occurred in the printing of the scheme booklet, with page 32 having been printed twice in place of page 33. That error did not affect the electronic copy of the scheme booklet and was corrected by letter sent to securityholders who were sent the scheme booklet by post, notifying them of that error and providing them with a replacement page 33 (Calder 22.11.18 [19]-[20]). This matter is also not of a nature that should cause the Court to decline to approve the Part 5.1 Scheme.
As Mr Jackman and Mr Williams also point out, the independent expert's report concluded that the Part 5.1 Scheme is in the best interests of members, in the absence of a superior proposal, and shareholders in ALL approved the Part 5.1 Scheme by a majority in number present and voting and by more than 75% of the votes cast. Mr Weiss' evidence (Weiss 22.11.18 [16], [36]) is that 314,418,701 votes were cast, representing over 65.54% of all votes able to be cast; 313,987,181 votes (99.86% of all votes cast) representing 478 members (93.36% of all members present and voting) were in favour of the resolution to approve the Part 5.1 Scheme; and 431,520 (0.14% of all votes cast) representing 34 members (6.64% of all members present and voting) were against the resolution to approve the Part 5.1 Scheme. I am satisfied that the schemes are fair and reasonable and that an intelligent and honest man or woman who was a member of the relevant classes, properly informed and acting alone, might approve them. The implementation of the Part 5.1 Scheme is conditional on a number of conditions precedents being satisfied or waived, and there is evidence (Ex A1) that the relevant conditions precedent have been satisfied or waived, other than the conditions relating to Court approval and the granting of the second judicial advice with respect to the Trust Scheme. The Plaintiffs have also led evidence (Ex A2) that ASIC has no objection to the Part 5.1 Scheme, for the purposes of s 411(17)(b) of the Corporations Act. Mr Jackman and Mr Williams submit, and I accept, that ALL has made out a case for approval of the Part 5.1 Scheme pursuant to subsection 411(4)(b) of the Corporations Act.
Mr Jackman and Mr Williams also submit, and I accept, that there is no utility having the Court order annexed to ALL's constitution: Re Anaconda Nickel Holdings Pty Ltd [2003] WASC 19; (2003) 44 ACSR 229 at [65]; Re Equinox Resources Ltd [2004] WASC 143; (2004) 49 ACSR 692 at [23]. I also make the exemption order sought under s 411(12) of the Act so that there is no need for the Court order approving the Part 5.1 Scheme to be annexed to every copy of ALL's constitution.

Judicial advice in respect of the Trust Scheme

I observed, in the Earlier Judgment, that it is now common in a "trust scheme" for a responsible entity to seek judicial advice in a two-stage process that is analogous to that adopted in company schemes under Part 5.1 of the Corporations Act. I also there noted (at [22]) that I was satisfied that ALML, as responsible entity of the Trust, would be justified in proceeding on the basis that the making of the proposed amendments to the Trust's constitution in connection with the Trust Scheme, following the requisite approval by unitholders, would be within its powers, including the power of alteration conferred by the Trust's constitution and s 601GC of the Corporations Act.
The Court's role in granting judicial advice at the second court hearing is of a similar nature to its role in respect of a scheme under s 411 of the Corporations Act: Re Australand Holdings Limited [2005] NSWSC 835; (2005) 219 ALR 728 at [28]-[29]; Re The Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101 at [24]. Mr Jackman and Mr Williams also point out that, at a second hearing in respect of a trust scheme, the Court must be satisfied that the procedural requirements for the obtaining of the unitholders' approval have been satisfied, and the Court will give considerable weight to the level of support by members of the proposal, and also to whether any person appears at the second court hearing to express any opposition to it: Re Cromwell Property Securities Ltd [2006] NSWSC 1449 at [23]; Re Commonwealth Managed Investments Ltd [2014] NSWSC 244 at [3].
By analogy with the approach adopted in a company scheme, the Court will generally need to be satisfied that relevant documents were despatched to unitholders and a meeting of unitholders has approved a trust scheme with the requisite majority. Here, the relevant documents were despatched to unitholders, albeit the issues noted above arose, and the resolutions put to extraordinary general meetings to give effect to the Trust Scheme were passed by unitholders. Mr Weiss' evidence (Weiss 22.11.18 [34]-[35]) is that 314,233,404 votes, comprising 99.86% of all votes cast, were in favour of the destapling resolution in respect of the Trust Scheme; 314,502,912 comprising 99.88% of all votes cast were in favour of the Trust constitution amendment resolution; and 314,302,281 votes comprising 99.88% of all votes cast were in favour of the Trust acquisition resolution.
By analogy with the approach adopted in a company scheme, the Court will have regard to whether a trust scheme is fair and reasonable so that an intelligent and honest person who was a unitholder, properly informed and acting alone, might approve it. There is no reason to think that, in these circumstances, intelligent and honest persons who were unitholders, properly informed and acting alone, would not approve the Trust Scheme and, as I noted above, it was in fact approved by unitholders by substantial majorities. I am satisfied that the Trust Scheme is fair and reasonable in the relevant sense. The Court will also consider whether the plaintiff has brought all matters that could be considered relevant to the exercise of the Court's discretion to its attention and whether there was full and fair disclosure to members of all information material to the decision whether to vote for or against the applicable scheme. There is no reason to doubt these matters.
In these circumstances, Mr Jackman and Mr Williams submit, and I accept, that ALML is justified in implementing the Trust Scheme in accordance with the resolutions passed by unitholders at the extraordinary general meetings.

Exemption under Securities Act 1933 (US)

Mr Jackman and Mr Williams point out that Ardent Leisure Group Ltd ("NewCo") intends to rely on the Court's approval of the schemes under s 411 of the Corporations Act for the purpose of qualifying for exemption from the registration requirements of the Securities Act 1933 (US), provided for by section 3(a)(10) of that Act, in connection with the issue of NewCo shares in implementation of the schemes. That exemption requires that the court whose order is to be relied upon must be advised that the issuer will rely on the exemption and I have noted that matter in the orders to be made: Re Permanent Trustee Co Ltd above at [11]-[20].
Consistent with the practice outlined in Re Simavita Holdings Ltd [2013] FCA 1274 at [50]-[52] and Re Atlantic Gold NL [2014] FCA 869 at [8], NewCo requests that the Court record that the Part 5.1 Scheme and Trust Scheme contemplate that stapled securityholders will receive NewCo shares for each stapled security held on the record date; the Court has been advised, before commencement of the second court hearing to approve the schemes, that NewCo will rely on the section 3(a)(10) exemption on the basis of the Court's approval and advice; and, although the Court does not act as a valuer, it has been informed of the value of the relevant securities by an independent valuer in a sworn valuation, and has taken this evidence into account in determining whether the schemes are fair and should be approved. The Court has also held a hearing to consider the fairness and reasonableness of the proposed Part 5.1 Scheme and Trust Scheme; notice of the date of the second court hearing has been included in the scheme booklet sent to stapled securityholders prior to the proposal being considered at the meetings and was advertised; and there was no appearance by any stapled securityholder at the hearing.

Orders

For these reasons, I made orders in the form proposed by the Plaintiffs at the second hearing on 28 November 2018.

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: 23 December 2018

Corporations Act 2001(Cth)ss 411, 412

In the matter of Ardent Leisure Limited trading as Ardent Leisure Limited; Ardent Leisure Management Limited in its capacity as the responsible entity of the Ardent Leisure Trust (No 2) [2018] NSWSC 1990

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