In the matter of Crestone Holdings Limited [2022] NSWSC 578

Supreme Court of NSW|2022-04-27|Before: Black J

Background

By Originating Process filed on 10 January 2022, Crestone Holdings Ltd ("Crestone") sought orders under s 411 of the Corporations Act 2001 (Cth) that it convene a meeting of all the holders of its fully paid ordinary shares to consider a proposed scheme of arrangement by which LGT Holding (Australia) Pty Ltd ("LGT") would acquire all of its shares. By my judgment delivered on 12 April 2022 ([2022] NSWSC 433), I made the orders sought.
Broadly, the scheme provides for LGT to acquire all the ordinary shares in Crestone for a cash amount of A$5.15 for each Crestone Share less the amount of the Initial Dividend (as defined) and the right for each Crestone Shareholder (other than Excluded Earn Out Scheme Shareholders, as defined) to receive a variable uncapped and capped amounts payable by reference to specified matters. Crestone's board of directors determined on 1 February 2022 to pay the Initial Dividend, payable on 2 May 2022, conditional on the Scheme being approved and becoming effective. Crestone's board of directors also determined on 22 April 2022 to pay a further dividend of $0.05 per Crestone share payable on 2 May 2022, also conditional on the Scheme being approved and becoming effective.
The scheme meeting was held on 22 April 2022 and, as I will note below, Crestone shareholders approved the scheme, both by a majority in number virtually present and voting, and by more than 75% of the votes cast.

Affidavit evidence

At the second Court hearing, Crestone reads the affidavit dated 22 April 2022 of its chair, Mr Richard Clifford, who outlines the manner in which the scheme meeting was conducted as a virtual meeting on 22 April 2022 and exhibits a poll report in respect of the scheme resolution, which records that an impressive 99.14% of shareholders voting by number, and 99.71% of votes cast, voted in favour of the scheme resolution. Accordingly, the statutory requirements in respect of voting at that meeting were amply satisfied.
By his affidavit dated 22 April 2022, Mr Jordan Foster, who is a "Customer Success Director" at Automic Pty Ltd, outlines the process for dispatch of scheme materials to Crestone shareholders. Mr Foster notes that there was a delay in the dispatch of emails to three Crestone shareholders, because of incorrect email addresses recorded in the share register, which was corrected prior to the shareholder meeting. Mr Foster refers to the receipt of proxy forms for the scheme meeting and to the conduct of the scheme meeting and also refers to the poll report in respect of the scheme meeting. Mr Foster notes that the shares held by 116 Crestone shareholders were voted in respect of the scheme resolution, representing a voting participation rate of approximately 81% by number of Crestone shareholders and 88% of Crestone shares on issue. Mr Foster confirms that he did not identify any issues regarding the use or operation of the virtual platform in respect of the scheme meeting, and refers to the passage of an ordinary resolution to amend the shareholders agreement between Crestone and Crestone shareholders at a general meeting held concurrently with the scheme meeting.
By his email dated 26 April 2022, Mr Thomas Story, a partner in the firm of solicitors acting for Crestone, referred to the registration of the scheme booklet and to the publication of an advertisement of the scheme and indicates that no notice had been received of any person proposing to appear at the second Court hearing to oppose the scheme. No shareholder announced their appearance at the second Court hearing to oppose the scheme.
By his affidavit dated 26 April 2022, Mr Andreas Batliner, who is an Attorney-at-Law practising in Liechtenstein, provides a further opinion in respect of the enforceability of a note trust deed and bank guarantee given in connection with the scheme under the Liechtenstein law, and also addresses the enforceability of a foreign arbitral award made in Australia under Liechtenstein law. I referred to the role of those documents and the provision for arbitration in my earlier judgment.
By a letter dated 26 April 2022 (Ex P1), the Australian Securities and Investments Commission ("ASIC") confirmed that it had no objection to the proposed scheme under s 411(17)(b) of the Corporations Act. Crestone also tendered executed certificates in relation to the satisfaction of conditions precedent to the scheme, signed for and on its behalf and on behalf of the bidding entity, LGT.

The applicable principles and determination

Section 411(4) of the Corporations Act provides that an arrangement is binding if, at a meeting of scheme shareholders, it is passed by a majority of scheme shareholders present and voting (in person or by proxy) and by 75% of votes cast and it is approved by order of the Court. At the second Court hearing, the Court will first determine whether the procedural requirements in respect of the scheme have been satisfied and then exercise its discretion as to whether or not to approve the scheme: Re Central Pacific Minerals NL [2002] FCA 239 at [12]; Re Redcape Property Fund Ltd and Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 at [7]; Re Aveo Group Ltd [2019] NSWSC 1679 at [15]. The Court is not bound to approve a scheme merely because it has previously made orders for the convening of meetings and the statutory majorities have been achieved, and will have due regard to members' assessment of their interests as manifested in the voting at the scheme meeting, and will recognise that shareholders are generally "the best judges of whether an arrangement is to their commercial advantage", and will therefore "be reluctant to make decisions contrary to the views of security holders expressed at meetings": Re NRMA Ltd (No 2) (2000) 156 FLR 412; [2000] NSWSC 408 at [22]; Re Seven Network Ltd (2010) 267 ALR 583; 77 ACSR 701; [2010] FCA 400 at [31]; Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [5]. I have here drawn on my summary of the applicable principles in Re Aventus Holdings Limited and Aventus Capital Limited as responsible entity of the Aventus Retail Property Fund [2022] NSWSC 266 at [10]ff.
In the exercise of its discretion, the Court will generally have regard to whether scheme members have voted in good faith and not for an improper purpose; 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; 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; whether there has been full and fair disclosure of all information material to the decision; whether minority shareholders would be oppressed by the scheme; whether the scheme offends public policy; and whether the interests of other groups who are not parties to, but are affected by, the scheme are dealt with appropriately: Re Seven Network Limited above at [35]-[40]; Re Aveo Group above at [15].
Mr Thomas, who appears for Crestone, submits that the procedural requirements for the scheme have been satisfied, excepted for the minor issue noted in Ms Foster's evidence which was rectified prior to the shareholder meeting; the independent expert has concluded that the scheme is fair and reasonable and therefore in the best interests of Crestone shareholders, in the absence of a superior proposal; Crestone shareholders have agreed to the scheme; and the Court had considered a number of features of the scheme in its first judgment and did not identify any matter that warranted the Court declining to convene a scheme meeting, and none of those matters warrants the Court refusing to approve the scheme.
I am satisfied that the statutory and procedural requirements for the scheme under s 411 of the Corporations Act have been satisfied. There is no reason to think that Crestone has not complied with the disclosure requirements in s 412 of the Corporations Act in respect of the explanatory statement for the scheme. The resolutions in respect of the scheme were passed by a majority in number of members present and voting (either in person or by proxy) at the scheme meeting and by more than 75% of the votes cast on the resolution in accordance with s 411(4)(a)(ii) of the Corporations Act and there was a high level of attendance at that meeting. There is no reason to doubt that the scheme is fair and reasonable in that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it, given Crestone shareholders' strong support for the scheme resolution; the Crestone directors' recommendation that shareholders vote in favour of the scheme for the reasons given in the scheme booklet; the independent expert's opinion that the scheme is in the best interests of shareholders, in the absence of a superior proposal; and the disclosures in the scheme booklet of the potential benefits and disadvantages of the schemes.
As I noted above, Crestone has tendered a letter from ASIC indicating that it has no objection to the scheme under s 411(17)(b) of the Corporations Act, and there is no reason to think that any other necessary matters have not been brought to the Court's attention. I am also satisfied that I should make an order exempting Crestone from compliance with s 411(11) of the Corporations Act, where the scheme will not modify any rights of shareholders or of creditors or of persons dealing with Crestone: Re Equinox Resources Ltd (2004) 49 ACSR 692; [2004] WASC 143 at [22]; Re Toll Holdings Ltd (No 2) [2015] VSC 236 at [18]-[19].
For these reasons, I made the orders sought by Crestone in respect of the scheme at the second Court hearing.

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: 13 May 2022

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