In the matter of Ellerston Global Investments Limited [2020] NSWSC 1108

Affidavit evidence

1. I should first refer to several affidavits on which EGI relied at the second hearing. In his affidavit dated 3 August 2020, Mr Paul Dortkamp, who is an independent non-executive director of EGI, the chair of the independent board committee established by EGI in connection with the scheme and who acted as chair of the virtual scheme meeting, referred to the appointment of Mr O'Hagan of Link Market Services Ltd, EGI's share registry, to act as returning officer of the scheme meeting and an associated general meeting and referred to the conduct of the scheme meeting. Mr Dortkamp's evidence established that the scheme resolution was passed by a majority in number of EGI shareholders present and voting on the scheme resolution and by more than 75% of the votes cast on the scheme resolution. He also addressed the level of voter turnout at the scheme meeting and provided corresponding information in respect of the general meeting which was convened to deal with the approval of an early termination fee payable in connection with the scheme for the purposes of Ch 2E of the Corporations Act. Mr Dortkamp's affidavit also exhibited the minutes of the scheme meeting, which identified questions asked at the scheme meeting by means of an online question portal, including as to the status of the KYC condition in respect of the scheme and the position if the minimum 75% threshold for that condition was not achieved. In the event, that condition has been satisfied.
2. EGI also relied on an affidavit dated 5 August 2020 of Mr O'Hagan, a relationship manager employed by Link Market Services, which deals with the despatch of the explanatory booklet and related documents in respect of the scheme, the receipt and processing of proxy forms in respect of the scheme and the conduct of the scheme meeting.
3. An affidavit dated 4 August 2020 of a solicitor acting for EGI, Mr Sommer, dealt with registration of the scheme booklet with the Australian Securities and Investments Commission ("ASIC"), the advertisement of the second court hearing, the engagement of a shareholder services advisory firm to encourage shareholder engagement with the scheme, and email and telephone enquiries made in respect of the scheme. Mr Sommer also noted that the solicitors acting for EGI had not been advised that any person intended to appear at the second scheme hearing to oppose the application for approval of the scheme, and there was no such appearance at the second scheme hearing. A second affidavit dated 6 August 2020 of Mr Sommer dealt with the position in respect of the satisfaction of conditions precedent to the scheme, and Mr Sommer gave oral evidence confirming the position in respect of the satisfaction of the condition precedent relating to the provision of KYC information by EGI shareholders.
4. EGI also tendered a Joint Conditions Precedent Certificate executed by each of EGI, ECL as responsible entity of the Fund and ECL as the manager of EGI and further Conditions Precedent Certificates executed by each of ECL as responsible entity of the Fund and by EGI.

The applicable principles

1. Section 411(4) of the Corporations Act provides that an arrangement is binding on scheme shareholders and EGI 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. Section 411(6) of the Act provides that the Court may grant approval subject to such alterations or conditions as it thinks just.
2. 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]; Re TPG Telecom Limited [2020] NSWSC 978 at [7]ff. 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: Re NRMA Ltd (No 2) (2000) 156 FLR 412 at [22]; Re Seven Network Ltd [2010] FCA 400; 77 ACSR 701 at [31]; Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [5]. However, the Court 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 Central Pacific Minerals NL above at [13].
3. Mr Oakes points out that the Court will generally take several matters into account in the exercise of its discretion, including whether the orders of the Court convening a meeting of members were complied with; the meeting of members so convened has approved the scheme with the requisite majorities; all other statutory requirements have been satisfied; the scheme is fair and reasonable so that an intelligent and honest man or woman who was a member of the relevant class, properly informed and acting alone, might approve it; that there was full and fair disclosure to members and creditors of all information material to the decision whether to vote for or against the applicable scheme; and 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 Solution 6 Holdings Ltd (2004) 50 ACSR 113 at [18]-[24]; Re Permanent Trustee Co Limited (2002) 43 ACSR 601 at [8]-[10]; Re Central Pacific Minerals NL [2002] FCA 239 at [8]-[14]; Re Seven Network above at [35]-[39]; Re Signature Capital Investments Limited (No 2) [2016] FCA 385; Re Medical Australia Ltd (No 2) [2017] FCA 1429; Re Bellamy's Australia Ltd (No 2) [2019] NSWSC 1889 at [10].
4. In Re Amcor Limited (No 2) [2019] FCA 842 at [7]-[11], Beach J summarised the applicable principles as follows: "In essence, my role at the second court hearing is to assess the Scheme taking into account whether the Scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it. Of course, I can only approve a scheme of arrangement if the requisite majority of shareholders vote in favour of it, but I am not bound to approve the Scheme simply because I previously made orders for the convening of a Scheme meeting and subsequently the requisite majority agreed to it. But I accept that shareholders voting collectively at the Scheme meeting are better judges than I of what is to their commercial advantage and in their interests and accordingly, absent good reason, I should give effect to their intentions. Now whilst there is no exhaustive statement of the matters as to which I must be satisfied before granting approval, it is not in doubt that in exercising my power under s 411(4)(b), I should be satisfied that: (a) the Scheme complies with the law, including the relevant procedural requirements; (b) The Scheme was approved by shareholders acting in good faith and for proper purposes; (c) There has been an accurate and comprehensive disclosure of the details of the Scheme and its effect to those voting on it; (d) there is no suggestion of oppression of any minority; (e) there is no evidence that any third parties will be disproportionately adversely affected by the operation of the Scheme; (f) the Scheme does not offend against any aspect of public policy; and (g) all matters that could be considered relevant to the exercise of my discretion have been drawn to my attention. I also need to be satisfied that the conditions precedent to the Scheme have been met, save for Court approval, and that ASIC has been given the opportunity to draw to my attention any relevant matter(s). In considering whether the Scheme complies with the law, including the relevant procedural requirements, I need to satisfy myself that the procedural and other requirements in the Act, Corporations Regulations 2001 (Cth) and [the Corporations Rules] have been complied with and that the requirements for a valid resolution of the shareholders have been satisfied. Now as I have said, my task is to consider whether the Scheme is fair and reasonable with the test of fairness and reasonableness including a consideration of whether "an intelligent and honest [shareholder], properly informed, acting alone, might approve [the scheme]" … But the Scheme shareholders' vote in favour of the Scheme is evidence of its inherent fairness. Put another way, if a majority of the Scheme shareholders have approved the Scheme, it is unlikely that the Scheme would be unreasonable. Further, I do not have to be satisfied that no better Scheme could have been devised."

Determination

1. Mr Oakes submits, and I accept, that the affidavit evidence establishes that the orders made by the Court at the first hearing to convene the scheme meeting were substantially complied with. Mr Oakes draws the Court's attention to a delay in despatch of the scheme documents, which did not occur not within the time required by order 3 made at the first hearing, but points out that more than 28 days' notice was given to shareholders of the scheme meeting and general meeting was provided, and there was also a delay in giving a copy of the explanatory booklet (which included the notices of scheme meeting and general meeting) to EGI's auditors, which did not allow them 28 days' notice as required by s 249K(1) of the Act. Mr Oakes submits, and I accept, that the late despatch of these documents are procedural irregularities which are automatically validated by reason of s 1322(2) of the Act in the relevant circumstances.
2. I also note that the scheme was supported by EGI shareholders at the scheme meeting by substantial majorities that comfortably exceeded the required majorities for the purposes of s 411(4) of the Act. The scheme booklet that was despatched to shareholders was substantially in the form of the document approved by the Court, and was registered with ASIC, and the evidence addresses the manner in which that booklet was sent. The evidence to which I have referred above also addresses voting and poll procedures at the scheme meeting and the conduct of the scheme meeting. I am satisfied that the procedural requirements in respect of the scheme were satisfied. Mr O'Hagan's affidavit and Mr Sommer's second affidavit also addressed the position as to tagging of votes in respect of shares in EGI held by Mr Ashok Jacob and ECL in its capacity as the responsible entity of the Fund in connection with the scheme. The voting intentions of those parties had been addressed in the explanatory booklet for the scheme. By letter dated 6 August 2020 (Ex A), ASIC advised under s 411(17)(b) of the Act that it had no objection to the proposed scheme of arrangement.
3. Implementation of the scheme was conditional on a number of conditions precedent being satisfied or waived. As I noted above, EGI has tendered certificates stating that all of the relevant conditions precedent have been satisfied or waived, other than the conditions relating to Court approval of the scheme, and the question of the KYC condition precedent was addressed by further oral evidence at the hearing.
4. There is no reason to doubt that the substantial number and majority of scheme members who voted in favour of the scheme did so in good faith and for a proper purpose, and no reason to doubt that 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. There is also no reason to doubt that EGI has brought to the Court's attention the matters that could be considered relevant to the exercise of the Court's discretion, or to doubt that there has been full and fair disclosure of all information material to the decision whether to approve the scheme.
5. Mr Oakes also submits, and I accept, that it is appropriate that the Court make an order exempting EGI from compliance with s 411(12) of the Act, where the scheme will not amend EGI's constitution; on its implementation, EGI will be a wholly owned subsidiary of ECL; and there is no utility in having the Court order annexed to EGI's constitution: Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at 240; Re Equinox Resources Ltd (2004) 49 ACSR 692; Re Toll Holdings Ltd (No 2) [2015] VSC 236 at [18]-[19]; Re CSG Limited (No 2) [2020] NSWSC 39 at [17].

Securities Act 1933 (US)

1. As I noted in the Earlier Judgment and above, EGI and ECL intend to rely on the Court's approval and advice for the purpose of qualifying for exemption from the registration requirements of s 3(a)(10) of the Securities Act 1933 (US) in connection with the consummation of the scheme and the issue of Ellerston Units under the scheme and the Ellerston Unit Offer. The Court's recognition of that matter is a requirement of the relevant exemption, and a practice has developed concerning the terms in which the Court may express that recognition: Re Simavita Holdings Limited [2013] FCA 1274 at [50]-[52]. Mr Oakes points out that this issue has been addressed in, inter alia, Re Atlantic Gold NL (No 2) [2014] FCA 869 at [8], Re Amcor Limited (No 2) above at [33] and in Re Ardent Leisure Management Limited in its capacity as the responsible entity of the Ardent Leisure Trust (No 2) [2018] NSWSC 1990 at [19].
2. Consistent with this practice, Mr Oakes submits and I recognise that the Court was advised before the commencement of the approval hearing that EGI intended to rely on the exemption under s 3(a)(10) of the Securities Act 1933 (US) on the basis of the Court's approval of the scheme; the Court has been informed of the securities to be offered as scheme consideration; an independent expert report concluded that the proposal is in the best interests of EGI shareholders; the Court is holding a hearing to consider the fairness and reasonableness of the proposed scheme; that hearing will be open to everyone to whom the securities would be issued, and notice of the hearing in appropriate terms has been provided in a timely manner so that those to whom the new securities are to be issued will have an opportunity to oppose or otherwise raise any objection to the scheme. No shareholder has given notice of any intention to appear at the second Court hearing to oppose the approval of the scheme or has opposed its approval.

Orders

1. For these reasons, I made the orders sought by EGI at the second Court hearing on 6 August 2020.

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: 24 August 2020