By Originating Process filed on 21 May 2024, Genex Power Ltd ("Genex") seeks orders under s 411 of the Corporations Act 2001 (Cth) ("Act") and associated orders relating to a proposed scheme of arrangement between Genex and holders of its fully paid ordinary shares, other than Excluded Target Shareholders (as defined).
By way of background, Genex is a company listed on the Australian Securities Exchange ("ASX") which is developing a portfolio of renewable energy generation and energy storage projects in Australia. On 12 April 2024, Genex announced to ASX that it had entered into a Transaction Implementation Deed ("TID") with Electric Power Development Co Ltd ("J-POWER"). On 4 June 2024, Genex announced to the ASX that Genex and J-POWER had amended the TID under a deed of variation dated 4 June 2024. The TID (as amended) provides for J-POWER, through a subsidiary ("J-POWER Nominee") to acquire, by way of scheme of arrangement, all of the ordinary shares in Genex other than those held by Excluded Target Shareholders (which include J-POWER Nominee) for A$0.275 in cash per share. The total scheme consideration payable to scheme shareholders is approximately A$351.5 million. The effect of the scheme would be to make Genex a wholly owned subsidiary of J-POWER and it is proposed that Genex would delist from the ASX following implementation of the scheme. The TID also provides for J-POWER Nominee to make a simultaneous off-market takeover offer for all of the Genex shares other than those held by J-POWER Nominee for A$0.270 in cash per share, conditional on the scheme not being approved by shareholders or by the Court and on J-POWER Nominee having a relevant interest in at least 50.1% of the Genex shares on issue, subject to a waiver of the latter condition in specified circumstances.
I made the orders sought by Genex at the conclusion of the hearing on 6 June 2024. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Williams, with whom Ms Ng appeared for Genex, in this judgment.
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Affidavit and other evidence
Genex reads the affidavit dated 21 May 2024 of Ms Alexandra Whitby, the solicitor acting for it in the proceedings, which exhibits an Australian Securities & Investment Commission ("ASIC") extract in respect of Genex and a copy of Genex's announcement made on 12 April 2024 to ASX concerning its entry into the TID with J-POWER.
Genex also reads the affidavit dated 5 June 2024 of Mr Ralph Craven, who is an independent non-executive director and chair of Genex, and a member and the chair of the independent board committee established by Genex ("IBC") to consider the proposed transaction. Genex's IBC comprises all Genex directors other than J-POWER's representative and nominee to the Genex board, Mr Kenichi Seshimo, who has not participated in any Genex board meetings or other discussions in relation to the transaction or the Genex board's consideration of it or earlier proposals and has abstained from giving a recommendation to Genex shareholders in respect of the transaction.
Mr Craven outlined the features of the proposed scheme and takeover offer and refers to the preparation of the draft transaction booklet, comprising the explanatory statement in respect of the scheme, a "Bidder's Statement" of J-POWER Nominee in relation to the takeover offer and Genex's "Target Statement" in relation to the takeover offer. Mr Craven also addresses the position in respect of break fees payable in respect of the transaction, Genex's capital structure, the interests of Genex directors in Genex shares, and the position in respect of Genex options and Genex performance rights, to which I refer below. He also refers to a "special exertion payment" payable to him and to other IBC members in respect of the scheme and to the proposed arrangements for the scheme meeting and a shareholder engagement strategy, including an inbound shareholder information line and an outbound call campaign and reminders to shareholders in respect of the proposed scheme meeting. Mr Craven also refers to the process adopted for verification of the transaction booklet, which was largely in customary form, although extending both to the explanatory statement for the scheme and to the takeover documents, and to the proposed publication of an advertisement for the second Court hearing on the ASX in accordance with common practice.
By an affidavit dated 4 June 2024, Mr Christopher Morse, who is a solicitor acting for Genex in respect of the transaction, referred to correspondence with ASIC in respect of the scheme and to the proposed dispatch of scheme and takeover offer documents to shareholders.
By his affidavit dated 4 June 2024, Mr Yasuhiro Koide, who is the chief executive officer and a director of J-POWER Nominee, noted that J-POWER Nominee was an indirect wholly-owned subsidiary of J-POWER and referred to J-POWER Nominee's role in the proposed scheme and to the verification of information concerning J-POWER in the scheme booklet. He also addressed the manner in which J-POWER intended to fund the scheme consideration from its existing cash reserves.
Genex also tendered a letter dated 5 June 2024 from ASIC which indicated, in customary form, that ASIC reserved its position as to s 411(17)(b) of the Act to the second Court hearing; that ASIC considered that it had had a reasonable opportunity to examine the terms of the scheme and draft explanatory statement and to make submissions to the Court in that respect; and ASIC did not propose to appear at the first Court hearing to make submissions or intervene to oppose the scheme.
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Applicable principles
The principles governing an application for orders to convene a meeting of members under s 411(1) of the Act are well-settled. In Re InvoCare Ltd [2023] NSWSC 1180 ("InvoCare") at [14] where I observed, by reference to Counsel's submissions, that:
"subject to the matters in s 411(2), s 411 of the Act confers a power on the Court to order a meeting of members where a compromise or arrangement is proposed between a Part 5.1 body and its members or any class of them (s 411(1)); an application for the order is made in a summary way by the body (s 411(1)); 14 days' notice of the hearing of the application, or such lesser period of notice as the Court or ASIC permits, has been given to ASIC (s 411(2)); the Court is satisfied that ASIC has had a reasonable opportunity to, first, examine the terms of the proposed compromise or arrangement to which the application relates and a draft of the explanatory statement relating to the proposed compromise or arrangement and, second, to make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory statement (s 411(2))."
These requirements are satisfied here. Genex is a Part 5.1 body and an acquisition scheme is a common example of an arrangement for the purposes of s 411 of the Act. ASIC has here been given appropriate notice as required under s 411(2) of the Act and I have referred to its letter in customary form above. I am satisfied that the applicable procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) ("Rules") will be met, noting that, as is now common practice, Genex seeks dispensation from the requirement under r 3.4 of the Rules for publication of a notice in the form of Form 6, consistently with Practice Note SC Eq 4 at [26(f)].
Mr Williams also submits that, if the preconditions to the exercise of power under s 411(1) of the Act are satisfied, then it is necessary for the Court to consider whether the Court should in its discretion exercise its power under s 411(1) of the Act. He refers to the principles relevant to the exercise of that discretion as summarised in Re Origin Energy [2023] NSWSC 1246 at [21]-[22], as follows:
"Once the preconditions to the exercise of the Court's power under s 411(1) of the Act are satisfied, it remains for the Court, in the exercise of its discretion, to determine whether the power ought to be exercised. It is well-established that the Court "will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the creditors' meeting the court would be likely to approve it on the hearing of a petition which is unopposed": F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504. In Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44], cited with apparent approval in Re CSR Ltd (2010) 183 FCR 358; [2010] FCAFC 34 at [58], French J observed that:
"… [i]t is however important to bear in mind that, by granting leave to convene the meeting, the court does not give its imprimatur to the proposed scheme. If the arrangement is one that seems fit for consideration by the meeting of members or creditors and is a commercial proposition likely to gain the court's approval if passed by the necessary majorities, then leave should be given: Re ACM Gold Ltd (1992) 34 FCR 530; 107 ALR 359; 7 ACSR 231; 10 ACLC 573 (O'Loughlin J). The court is not required to give close consideration to the effects of the scheme upon individual members of the classes of members or creditors affected. So to do would be to "introduce burdensome and to a large extent ineffectual consideration at this interlocutory stage": Re Jax Marine Pty Ltd [1967] 1 NSWR 145 at 148 (Street J)…
The court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the court … That question is to be answered when the scheme returns to the court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further."
At the first Court hearing, the Court is concerned not with whether final approval should be given to the scheme, but whether the scheme is one which is adequately explained to those who have a financial interest in it, and whether there is any obvious flaw in the scheme, such that it would be inappropriate even for it to be submitted for shareholders' consideration, and the question is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed is of benefit to members: Re Abacus Funds Management Ltd (2006) 24 ACLC 211; [2005] NSWSC 1309 at [23]; Re Centrebet International Ltd [2011] FCA 870 at [29]; Re SAI Global Ltd [2016] FCA 1312 at [18]. In Re Associated Advisory Practices Limited [2013] FCA 761 at [22], Farrell J summarised the principles to which I have referred above as follows:
"The court will not ordinarily convene a meeting of members to consider a scheme of arrangement unless the court is satisfied that the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting of members, the court would be likely to approve the scheme on the hearing of an unopposed application: Re Central Pacific Minerals NL [2002] FCA 239 at [8]; Re CSR Ltd (2010) 183 FCR 358 at [12]; Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504. By granting leave to convene the meeting, the court does not give its imprimatur to the proposed scheme or foreshadow its approval at the second court hearing for the purposes of s 411(4)(b): Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [36]; Australian Securities Commission v Marlborough Gold Mines Ltd at 504-505. The question for the Court is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed as being beneficial to members: In Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 243; Re CSR Ltd at [80]. The court does not need to be satisfied that no better scheme could have been proposed: Re Foundation Healthcare Ltd at [44]. Ultimately, the question is for the members themselves: see FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72."
Mr Williams submits and I accept that, here, the scheme is an all cash acquisition scheme and there is nothing in the terms of the scheme, or in its effect on Genex shareholders, that would warrant the Court declining to permit its consideration by shareholders. A verification process has been undertaken in customary from and, subject to the specific matters I address below, there is no reason to think that the Court would not approve the scheme at a second Court hearing if it receives the requisite majorities at the scheme meeting. The IBC unanimously recommends that Genex shareholders (other than Excluded Target Shareholders) vote in favour of the scheme at the scheme meeting, in the absence of a Superior Proposal (as defined in the TID) and subject to the independent expert concluding, and continuing to conclude, that the scheme is fair and reasonable and in the best interests of Genex shareholders (other than Excluded Target Shareholders). Subject to the same qualifications, each IBC member intends to vote, or cause to be voted, all of his or her IBC Member Shares (as defined in the TID) in favour of the scheme. The independent expert's report prepared by Grant Thornton has assessed the value of a Genex share on a 100% ownership and control basis to be in the range of $0.223 and $0.290 per Genex share; the scheme consideration of A$0.275 per Genex share falls within the that range of values for a Genex share; and Grant Thornton has expressed the opinion that the scheme is "fair" and "reasonable" and hence in the best interests of Genex shareholders (other than Excluded Target Shareholders) in the absence of a superior alternative proposal emerging. Subject to the additional matters that I address below, I am satisfied that there is no reason not to order that the scheme meeting be convened and make the additional orders sought by Genex.
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Several additional matters
Consistent with the ex parte nature of the application, Mr Williams addresses several additional matters. First, Mr Williams points out that Genex proposes to send a single integrated transaction booklet to Genex shareholders. There can be no doubt that a document in that form is more complex than a scheme booklet in the usual form. However, as Mr Williams points out, earlier case law has accepted that a transaction that involves a parallel scheme of arrangement and a takeover bid is permissible and that an integrated transaction booklet can be used in such a transaction: Re Healthscope Ltd (2019) 139 ACSR 608 at [40]; [2019] FCA 759; Re Huon Aquaculture Group Ltd [2021] FCA 1170 ; Re Virtus Health Ltd [2022] NSWSC 597 at [25]; Re Nitro Software Ltd [2023] NSWSC 13 at [31]-[32]; Re Azure Minerals Ltd [2024] WASC 58 at [50]-[53]. There is real importance in consistency of decision-making in scheme case law and I should not depart from that approach, particularly where neither ASIC nor any third party has intervened to contend to the contrary.
Second, Mr Williams points out that J-POWER intends to fund the scheme consideration from the J-POWER group's existing cash reserves and, as at 31 March 2024, J-POWER had (on a consolidated basis) cash reserves available to it of approximately A$2.7 billion, and these matters are established by Mr Koide's affidavit evidence. J-POWER and J-POWER Nominee have entered into a legally binding equity commitment letter by which J-POWER undertakes to provide to J-POWER Nominee, if the scheme becomes effective, an amount of $351,501,462.13, being the maximum aggregate amount of the scheme consideration that J-Power Nominee will be required to pay to scheme shareholders under the scheme. J-POWER and J-POWER Nominee have also executed a deed poll covenanting in favour of scheme shareholders that, subject to the scheme becoming effective, they will perform the obligations attributed to them under the scheme ("Deed Poll"). I accept that the evidence as to these matters sufficiently evidences J-POWER Nominee's capacity to pay the scheme consideration. Mr Williams also submits and I accept that the Deed Poll together with the provision of the scheme consideration to a trust account maintained by Genex are well-established means of managing performance risk: Re ELMO Software Pty Ltd [2023] NSWSC 12 at [27]-[28]. This matter provides no reason not to convene the scheme meeting and make the other orders sought by Genex.
Third, Mr Williams addresses the position in respect of "Genex Equity Incentives". He points out that Genex operates a Genex Performance Rights (as defined) plan under which it has granted or issued Genex Performance Rights which are held by members of Genex's management as disclosed in section 11.3 of the transaction booklet. No Genex Performance Rights are held by or on behalf of any Genex director, so no question of disclosure arises in that respect in relation to the recommendation by the members of the IBC. Genex has also issued "Genex Options" which are held by or on behalf of IBC members, and that matter is disclosed in section 11.2 of the transaction booklet, and also by a former director of Genex. The TID provides that it is a condition precedent to the scheme that, inter alia, Genex enters into a deed with each holder of Genex Options that provides for the cancellation of those Genex Options ("Option Cancellation Deed") in the manner prescribed in the TID; and, as disclosed in Section 11.4(a) of the transaction booklet, each of the Genex optionholders has agreed under an Option Cancellation Deed to have all of the Genex Options that they hold cancelled for a cash payment if the scheme becomes Effective (as defined). The aggregate Genex Option Cancellation Consideration (as defined) is determined on the Black-Scholes valuation methodology for options and is expected to be $520,550 and the amount each IBC member will receive is disclosed in section 11.4(a) of the transaction booklet. I am satisfied these matters are sufficiently disclosed in the transaction booklet and provide no reason not to convene the scheme meeting and make the other orders sought by Genex.
Fourth, Mr Williams notes that the interests of IBC members are disclosed in the chair's letter, elsewhere in the transaction booklet and in section 11 of the transaction booklet. He notes that, as disclosed in section 11.7(b) of the transaction booklet, IBC members are entitled to a "Special Exertion Fee" as contemplated by Genex's constitution and approved by the Genex board, to recognise the increased workload and time commitment (in excess of that required for Genex's ordinary business requirements) which have been required in connection with the scheme and takeover offer. The payment of the Special Exertion Fee is not conditional on the scheme becoming effective or being implemented and is based on the time spent on certain specified matters by that IBC member at specified rates. The amounts paid, and which are payable, to each IBC member as at the date of the transaction booklet are disclosed in section 11.7(b) of the transaction booklet. Section 11.7(c) of the transaction booklet also discloses that the chair of Genex and the IBC, Dr Craven, will also receive a "Chairman Special Exertion Payment" pursuant to arrangement agreed in 2017, which apply in the event of a change of control of Genex.
Mr Williams recognises that, where a director will receive a substantial benefit in relation to a scheme which other shareholders will not receive, that benefit should be disclosed as a matter for shareholders to take into account when considering that director's recommendation: Re Kidman Resources Ltd [2019] FCA 1226 at [115]; Re DWS Ltd [2020] FCA 1590 at [41]-[49]; Re Intega Group Ltd [2021] NSWSC 1434 at [22]; Re Kyckr Ltd [2022] NSWSC 1316 at [18]; Re Pendal Group Ltd (No 2) [2022] NSWSC 1648 at [25]; Re Oz Minerals Ltd [2023] FCA 197 at [10], [18]. He submits and I accept that the interests of and benefits to IBC members, in respect of their Genex shares, the amounts payable in respect of the cancellation of Genex Options and other payments are sufficiently disclosed in the chair's letter and sections 11.2, 11.4(a) and 11.7 of the transaction booklet. This matter provides no reason not to convene the scheme meeting and make the other orders sought by Genex.
Fifth, Mr Williams addresses J-POWER's interests in Genex. He points out that J-POWER Nominee's shareholding in Genex is disclosed at sections 8.2(b) and 11.7(d) of the transaction booklet and Genex's existing commercial, development and debt financing arrangements with the J-POWER group are disclosed in section 11.10 of the transaction booklet. I am satisfied these matters are sufficiently disclosed in the transaction booklet and also provide no reason not to convene the scheme meeting and make the other orders sought by Genex.
Sixth, Mr Williams refers to exclusivity provisions in respect of the scheme. Clause 10 of the TID imposes a number of restrictions and obligations on Genex and the IBC in relation to negotiations with third parties such as "no shop", "no talk" and "no due diligence" restrictions and a "notification of approach" obligation and confers a "matching right" on Genex. The "no talk" and "no due diligence" restrictions are subject to the IBC's fiduciary or statutory obligations. The "End Date" for the "Exclusivity Period" under the TID is 30 November 2024 unless otherwise agreed to be a later date, or the TID is terminated or the takeover offer has become unconditional and J-POWER has acquired a relevant interest in at least 50.1% of the Genex shares, although that period is extended if the offer period of the takeover offer is extended, to expire at the end of the offer period. Mr Williams submits and I accept that this is not an unreasonable period in a transaction of substantial size which involves a degree of complexity, and the exclusivity provisions are otherwise in common form and are prominently disclosed in section 11.11(b) of the transaction booklet. These provisions provide no reason not to convene the scheme meeting and make the other orders sought by Genex.
Seventh, Mr Williams points out that cl 11.2 of the TID provides for Genex to pay to J-POWER a break fee of $3,515,014 (excluding GST, if any) in specified circumstances, and this matter is disclosed in section 11.11(c) of the transaction booklet. Clause 12.2 of the TID in turn provides for J-POWER to pay to Genex a Reverse Break Fee of $3,515,014 (excluding GST, if any) in specified circumstances and that matter is disclosed in section 11.11(d) of the transaction booklet. Neither break fee is payable merely because the resolution submitted to the scheme meeting in respect of the scheme is not approved by the majorities required under s 411(4)(a)(ii) of the Act, and the amount of each break fee is less than 1% of the total equity value of Genex as implied by the scheme consideration, consistent with the guidance issued by the Takeovers Panel in respect of "deal protection" measures.
Eighth, Mr Williams refers to the manner of despatch of scheme documents which is in conventional form.
Ninth, Mr Williams notes that Genex has engaged a third party shareholder advisory services firm, Morrow Sodali Pty Limited ("Morrow Sodali"), to conduct an in-bound information line for Genex shareholders who have questions in relation to the scheme or the takeover offer, and Genex has made the in-bound call script available for review. Genex also proposes to have Morrow Sodali conduct an outbound call campaign to "high net worth" and "retail" Genex shareholders and has also made the outbound call script available for review. Morrow Sodali will also arrange for "reminder to vote" emails and a SMS/text message communication to be sent to Genex shareholders who have elected to receive communications from Genex electronically and have nominated an email address and/or telephone number (as applicable) for that purpose and those emails and SMS communications are also in evidence. Mr Williams submits and I accept that these proposed communications follow the information in the transaction booklet, are not unbalanced and encourage shareholders to read the transaction booklet in its entirety. In accordance with current scheme practice, Genex draws these proposed communications to the Court's attention but does not seek orders approving them. Consistent with the approach taken in InvoCare, I have reviewed the scripts for those communications, I had no difficulty with them and I record that matter in this judgment.
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Orders
For these reasons, I made the orders sought by Genex at the conclusion of the first Court hearing on 6 June 2024.
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Decision last updated: 21 June 2024