In the matter of ERM Power Limited [2019] NSWSC 1672

Affidavit evidence

ERM Power relies on the affidavit dated 8 November 2019 of its independent non-executive chair, Ms Alroe, who acted as chair of the scheme meeting convened to consider the resolution to approve the scheme and gives evidence of the results of the poll in respect of the scheme resolution. She also gives evidence of the result of a subsequent annual general meeting of ERM Power which, relevantly, voted to approve the grant of performance rights for FY20 to Mr Stretch as a long term incentive award under ERM Power's long term incentive plan. The vote of shareholders in that respect avoids any issue as to the position which might have arisen had shareholders voted not to approve the award of those incentives, where the scheme provided for Mr Stretch to receive a payment calculated by reference, inter alia, to those incentives.
ERM Power relies on the affidavit dated 8 November 2019 of Ms BeeYen Nah, who is a client relationship manager with Link Market Services Ltd ("Link"). Link and an associated entity were engaged by ERM Power to provide registry services in relation to the scheme. Ms Nah refers to the maintenance of ERM Power's register of members, the dispatch of the scheme booklet to postal, airmail and electronic recipients, the receipt of proxies, the registration of attendees at the scheme meeting and voting at the scheme meeting. She also refers to tagging of votes exercised by companies within the "Shell Group", associated with the acquiring entity, and by Mr Stretch. Ms Nah initially noted that 77.41% of shares were voted at the scheme meeting and indicates that 78.36% of shareholders voting by number and 98.71% of votes cast were in favour of the scheme. By a further affidavit dated 11 November 2019, Ms Nah addressed an error in that calculation and recalculated the percentage of votes cast (in person or by proxy) on the scheme resolution in favour of the scheme, disregarding the votes of Mr Stretch and of the Shell Group companies, as 98.22%. That difference is plainly not material for present purposes.
An affidavit dated 6 November 2019 of Mr Steven Cooper, who is a client services director at NOUS Company Pty Ltd ("NOUS"), deals with the dispatch of scheme materials to postal recipients, airmail recipients and electronic recipients to whom email delivery was not successful. Mr Cooper also refers to the dispatch of supplementary disclosure, in a form approved by order of the Court made on 17 October 2019.
An affidavit dated 11 November 2019 of Mr Ken-Chai Ooi, who is a solicitor acting for ERM Power, referred to the engagement of NOUS to dispatch the scheme booklet in paper form to those ERM Power shareholders who had not nominated an electronic address for the purpose of receiving notices of meeting and other electronic communications, and referred to the provision of a copy of the scheme booklet to NOUS for that purpose. An affidavit also dated 11 November 2019 of Ms Irwin, who is a manager of the corporate secretariat and company secretary team of ERM Power, dealt with steps taken to implement the electronic dispatch of the scheme booklet.
An affidavit dated 8 November 2019 of Mr Andrew Rich, a solicitor acting for ERM Power in respect of the application, deals with registration of the scheme booklet by the Australian Securities and Investments Commission ("ASIC"), the payment of a special dividend by ERM Power to its shareholders, supplementary disclosure made in the form approved by the Court on 17 October 2019, and the publication of an advertisement giving notice of this second hearing. Mr Rich also indicates that he did not receive notice that any person would attend this hearing to oppose the scheme, and no shareholder appeared at the second Court hearing to oppose the scheme.
An affidavit dated 8 November 2019 of Mr Brendan Henry, a client services manager of Morrow Sodali, deals with the issue of tracing notices in order to identify shares in which Shell Group entities had an interest. The issue of those notices identified an immaterial error in the disclosure of the interest of the Shell Group entities in the scheme booklet. An affidavit dated 11 November 2019 of Ms Gardner, who is a solicitor acting for Shell Energy Australia, identified an overstatement of the number of shares held by the Shell Group entities in ERM Power in the explanatory memorandum. The number of shares held by the Shell Group was overstated in the explanatory memorandum by 23,938 shares and should have been 325,345 shares, representing 0.13% of ERM Power's shares. That error resulted partly from a double counting, and partly from an error relating to the inclusion of shares that were not actually held on behalf of Shell Asset Management Company BV. That error was not material for present purposes.
ERM Power also tenders a deed poll executed by it and by Shell Energy Australia confirming that each of the conditions precedent to the scheme, other than in respect of Court approval, have been satisfied or waived (Ex A1), and a letter dated 12 November 2019 from ASIC (Ex A2) which confirms that, under s 411(17)(b) of the Corporations Act, it has no objection to the proposed scheme of arrangement.

Submissions and determination

Section 411(4) of the Act relevantly provides that an arrangement is binding on members and ERM Power only if, at a meeting of members, it is passed by a majority of members 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) provides that the Court may grant approval subject to such alterations or conditions as it thinks just.
Once the necessary statutory conditions are met, as has occurred in this case, the Court has a supervisory function in respect of the approval of the scheme: Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 247. At the second hearing, the Court will assess whether the Court's orders convening a meeting of members were complied with; the meeting of members 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 person who was a member of the relevant class, properly informed and acting alone, might approve it; 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; 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 David Jones Limited (No 3) [2014] FCA 753 at [3]; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113 at [18]-[24]; Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [8]-[10]; Re Central Pacific Minerals NL [2002] FCA 239 at [8]-[14]; Re Seven Network Ltd (No 3) [2010] FCA 400 at [35]-[39]; Re Signature Capital Investments Limited (No 2) [2016] FCA 385; Re Medical Australia Ltd (No 2) [2017] FCA 1429; Re GBST Holdings Limited [2019] NSWSC 1503 at [11]. As Mr Wood, who appears for ERM Power points out, where there is no opposition to the order for approval, considerable weight should be given to the commercial judgement of those who have voted to approve the scheme: Re Central Pacific Minerals NL above at [13]; Re Anaconda Nickel Holdings Pty Ltd (2003) 44 ACSR 229 at 237.
I am satisfied that the affidavit evidence that I have summarised above establishes that the Court's orders for convening the meeting were complied with. As I have noted above, and as Mr Wood points out, ERM Power also "tagged" the votes cast by Mr Stretch and his associated entities, where he has an interest in the outcome of the scheme, arising from matters which I addressed in the earlier judgment, and ERM Power also identified the votes cast by Shell Group entities that hold ERM Power shares. As I noted above, disregarding the votes cast at the scheme meeting by Mr Stretch and by the Shell Group entities, 98.22% of the votes cast (either in person or by proxy) on the resolution at the scheme meeting were in favour of the scheme. Accordingly, the statutory majorities in s 411(4)(a)(ii)(A) and (B) of the Act have been satisfied and would have been satisfied irrespective of whether the ERM Power shares owned or controlled by Mr Stretch and the Shell Group entities were voted at the scheme meeting. As I noted above, ASIC has issued a letter in common form under s 411(17)(b) of the Act stating that it has no objection to the scheme. All statutory pre-conditions to the Court's approval have been satisfied.
In making orders for convening the scheme meeting, the Court was satisfied that the scheme was of such a nature that, if it received the statutory majorities at the scheme meeting, the Court would be likely to approve it on the hearing of an application that is unopposed, reserving the question as to a payment to Mr Stretch in lieu of receiving performance rights for FY20. I noted (at [17]) in the earlier judgment that: "… the effect of the scheme is that Mr Stretch would be paid out the value of the FY20 Performance Rights, even if their issue is not approved by shareholders. Although I recognise that that is, in some respects, an odd result, it is squarely disclosed in the scheme booklet, following amendments made in the course of the hearing, and shareholders can take it into account at the scheme meeting and the Court may have regard to it in determining whether to approve the scheme at the second Court hearing." No issue now arises from that payment where those performance rights were approved at the ERM Power annual general meeting held immediately after the scheme meeting.
Mr Wood submits, and I accept, that nothing has occurred since the first Court hearing to warrant a departure from that position. No shareholder has sought to oppose the approval of the scheme by the Court, and there is no suggestion of any oppression in the conduct of the meeting of members.
As I noted above, ERM Power has led evidence of the satisfaction or waiver of the conditions precedent, other than Court approval, in respect of the scheme. There is no reason to doubt that all necessary matters have been brought to the Court's attention and those matters would not warrant the Court refusing to approve the scheme at the second Court hearing. The order sought by ERM Power exempting it from compliance with s 411(11) of the Act is properly made where the scheme does not amend its constitution and, on implementation of the scheme, ERM Power will be a wholly owned subsidiary of Shell Energy Australia: Re Toll Holdings Ltd (No 2) [2015] VSC 236 at [18]-[19].
For these reasons, I made the orders sought by ERM Power at the conclusion of the second Court hearing.

At a glance

Court

Decision date

Before

Source

Judgment (5 paragraphs)

Legislation Cited (1)

Cases Cited (8)

Cited By (1)