In the matter of Link Administration Holdings Limited [2024] NSWSC 331

Affidavit evidence

1. Link reads the affidavit dated 7 March 2024 of its solicitor, Mr Hastings, which refers to the background of the scheme and exhibits a company extract for Link obtained from the Australian Securities and Investments Commission ("ASIC").
2. Link also reads the affidavit dated 19 March 2024 of Andrew MacLachlan, who is its Chief Financial Officer. Mr MacLachlan outlines the elements of the proposed scheme and the consideration payable to Link shareholders in respect of the scheme. His evidence is that Link's board has formed the view that the scheme is in the best interests of Link's shareholders and unanimously recommends that shareholders vote in favour of the scheme, subject to there being no superior proposal (as defined) and the independent expert continuing to conclude that the scheme is in the best interests of Link shareholders. Mr MacLachlan also refers to the proposed treatment of Link equity incentive arrangements if the scheme becomes effective, including certain incentives held by Link's Chief Executive Officer and Managing Director, Mr Bhatia, and refers to the disclosure of Mr Bhatia's interest in the Chair's letter in the scheme booklet and in sections 1.2, 2 and 9.2 of the scheme booklet. In the course of submissions at the first Court hearing, Link indicated that it would expand that disclosure to quantify the value of Mr Bhatia's interest in the scheme, a large part of which reflects his present shareholding in Link, but part of which reflects the treatment of the equity incentive arrangements under the scheme.
3. Mr MacLachlan also addresses the position in respect of a break fee that may be payable by Link in specified circumstances; exclusivity provisions in respect of the scheme which are in conventional form; and Link's proposal that the scheme meeting be held as a hybrid meeting. Mr MacLachlan notes that Mr Carapiet, Link's independent chairman, or failing him Ms Trafford-Walker, an independent non-executive director, consent to act as chair at the scheme meeting. Mr MacLachlan also outlines the verification process in respect of the scheme booklet which was in conventional form. He refers to the provision of the scheme booklet to ASIC, the manner of the proposed dispatch of documents to Link shareholders and Link's proposed communications with shareholders, by way of reminder communications and an outbound and inbound question and answer script. In accordance with common practice, Link drew the scripts for those communications to the Court's attention but did not seek approval for them. Mr MacLachlan also notes that, as is now common practice, Link proposes to release an announcement containing details of the second Court hearing to ASX. The exhibits to Mr MacLachlan's affidavit included a copy of the scheme booklet, to which I was taken in the course of the first Court hearing and the scripts for communications between Link and shareholders, which I have reviewed and as to which I have no concerns.
4. Link also read the affidavit dated 15 March 2024 of Mr Ryota Takahashi, who is senior manager of the Asset Management and Investor Services Planning Division of Bidder and addressed the funding of the scheme consideration, using Bidder's existing cash reserves and the verification process for information concerning Bidder contained in the scheme booklet, which was also in accordance with accepted practice. By a further affidavit dated 15 March 2024, Mr Takayuki Yasuda, who is a director, deputy director and executive officer of Bidder confirmed the statements of intention submitted to Bidder's board in the scheme booklet, at least to the extent that they reflect Bidder's present intentions and his present intentions, and addressed a deed poll executed by Bidder on 15 March 2024 in favour of Link shareholders. Although Bidder is a Japanese corporation, it appears that Link, Bidder and their legal advisers are not in any uncertainty as to the validity of execution of that deed poll so as to require further evidence of execution to be led before the Court.
5. Link tendered a final version of the scheme booklet (Ex 1) and mark-ups indicating several relatively minor amendments to the scheme booklet (Exs A-B). Link also tendered a letter dated 20 March 2024 from ASIC to its directors which indicated, in customary form, that ASIC reserved its position as to s 411(17)(b) of the Act to the second Court hearing and did not seek to be heard or to oppose the convening of the scheme meeting at this hearing.

Submissions and determination

1. Mr Thomas points out that the principles governing an application for orders to convene a meeting of members under s 411(1) of the Act are well settled and refers to my summaries of those principles in Re Villa World Ltd (2019) 139 ACSR 550; [2019] NSWSC 1207 at [15]-[19] and in Re InvoCare Ltd [2023] NSWSC 1180 at [14].
2. Mr Thomas points out that the Court has a discretion to make an order under s 411(1) if a compromise or arrangement is proposed between a Part 5.1 body and its members (or any class of them); the application for the order is made in a summary way by that body; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) have been met; the scheme booklet provides proper disclosure to shareholders; 14 days' notice of the hearing of the application has been given to ASIC, or such lesser period as the Court or ASIC permits, and the Court is satisfied that ASIC has had a reasonable opportunity to examine the terms of the proposed compromise or arrangement to which the application relates and a draft explanatory statement relating to the proposed compromise or arrangement and make submissions to the Court in relation to the proposed compromise or arrangement and the draft explanatory booklet; and there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved.
3. Mr Thomas submits and I accept that each of these requirements is met in the present case. Link is a Part 5.1 body and the proposed scheme is an arrangement between Link and its shareholders; the requirements of the Rules are satisfied; and ASIC was given more than 14 days' notice as required under s 411(2) of the Act and I have referred to its letter setting out its position above. Mr Thomas points out that the scheme is an all-cash acquisition scheme. I have referred to the Link directors' recommendation above and Link has obtained a report from Deloitte Corporate Finance Pty Ltd which expresses the view that the proposed scheme is fair and reasonable and in the best interests of Link shareholders. There is evidence of the verification procedures undertaken in respect of the "Link Information" and information relating to the Bidder in the proposed scheme booklet. There is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved at the scheme meeting.
4. Consistent with the ex parte nature of the application, Mr Thomas draws several aspects of the scheme to the Court's attention. First, he points out that, as disclosed in section 9.2 of the proposed scheme booklet, Link operates equity plans that are governed by the Omnibus Equity Plan ("OEP") rules. The OEP rules allow for Link Group employees, Link Group executives and senior leaders to be granted/receive Performance Share Rights, Restricted Shares and/or Share Rights (as those terms are defined in the scheme booklet) ("Link Equity Incentives") which, subject to satisfaction of performance hurdles and/or service-based conditions, will, if vested, allow participants to receive fully paid ordinary shares in Link. Clause 4.6(a) of the SID provides that Link may deal with the Link Equity Incentives at the Link Board's discretion but must take such action as is necessary to ensure that no Link Equity Incentives are in existence on the Scheme Record Date (as defined) and all rights attached to any Link Equity Incentives have been extinguished, and the manner in which Link intends to satisfy this condition is described in section 9.2 of the proposed scheme booklet. Mr Thomas submits and I accept that holders of performance rights or similar rights to receive Link shares who are also Link shareholders are not in a separate class of members by reason only that they also hold such rights: Re Foster's Group Ltd (No 2) [2011] VSC 547 at [38]-[43]; Re Cashcard Australia Ltd (2004) 48 ACSR 738; [2004] FCA 223.
5. Mr Thomas recognises that, as I noted above, Mr Bhatia, who is Link's Managing Director and Chief Executive Officer, holds Link Equity Incentives. The manner in which Link intends to deal with Mr Bhatia's Link Equity Incentives is also described in section 9.2 of the proposed scheme booklet. Mr Thomas also submits and I accept 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) 139 ACSR 122; [2019] FCA 1226 at [115]; Re DWS Ltd (2020) 148 ACSR 616; [2020] FCA 1590 at [41]-[49]. Mr Bhatia's interest is disclosed in the chair's letter and in sections 1.2, 2 and 9.2(b) of the scheme booklet. As I noted above, appropriately, in the course of submissions at the first Court hearing, Link indicated that it would expand that disclosure to quantify the value of Mr Bhatia's interest in the scheme. I am satisfied that, with appropriate disclosure, these matters do not prevent Mr Bhatia making a recommendation to shareholders in respect of the scheme or provide reason for the Court not to convene the scheme meeting.
6. Second, Mr Thomas addresses the proposed treatment of shares forming MUFG's relevant interests at the scheme meeting. He points out that neither Bidder nor MUFG is the registered holder of any Link shares and they do not have the power to control voting rights attaching to, or the power to dispose of, any Link Shares. However, as is disclosed in section 6.5 of the proposed scheme booklet, MUFG and Bidder are taken to have a relevant interest (as defined in the Act) in 7.25% of Link's shares held by Morgan Stanley, an investment bank and financial services company in which MUFG has a minority interest, and 1.46% of Link shares held by First Sentier Investors ("FSI") that is a subsidiary of MSG. Mr Thomas also points out that Morgan Stanley is not controlled by MUFG and operates on the other side of an information barrier and, although FSI is a subsidiary of MUFG, it is a stand-alone business which operates independently and also on the other side of an information barrier.
7. Mr Thomas notes that, in correspondence with Link, ASIC has pointed to a common practice for related body corporates' shares not to be voted in scheme meetings or otherwise for the Court to disregard those votes: Re Kangaroo Resources Ltd [2018] WASC 327 at [44]; T Damien & A Rich, Schemes, Takeovers and Himalayan Peaks, 4th ed, 2021 at pp 839-842. ASIC has asked Link to explain and draw to the Court's attention to how allowing the votes of FSI to count towards the shareholder approval threshold is consistent with this approach. Link accepts that such a common practice exists in respect of bidders and their related bodies corporates. However, Mr Thomas submits that an exception to the general position arises where the relevant shares are held on behalf of third party beneficiaries by a related body corporate of the bidder operating as a professional fund manager or custodian: Schemes, Takeovers and Himalayan Peaks at p 840. He submits that, in those situations, there is no good reason for the shares held by the fund manager or custodian not to be voted in accordance with decisions reached by the manager or custodian with regard to their contractual and general law duties to their third party beneficiaries, and that the alternative would risk disenfranchising beneficial owners of shares merely by reason of the identity of their fund manager or custodian. Mr Thomas also points out that, consistent with that exception, Perpetual, a professional fund manager, voted Pendal shares held by it on behalf of its funds or client discretionary accounts in favour of the Pendal scheme in 2023, although the voting of those shares had no effect on the outcome and the Court did not need to consider whether those shares ought be excluded in determining the result of the scheme meeting: Re Pendal Group Ltd (No 3) [2023] NSWSC 14 at [16].
8. Mr Thomas submits that, where FSI is a professional fund manager, its and MUFG's consequential relevant interest in Link is held in a fiduciary capacity and is subject to the terms of the relevant client mandate under which it must act in its clients' interest and it is appropriate that the votes be counted. That position is plainly also the case, a fortiori, in respect of Morgan Stanley in which MUFG has a minority interest. Mr Thomas notes that Link has indicated to ASIC that it will tag all shares in which MUFG has a relevant interest so that any impact of those votes can be identified at the second Court hearing and taken into account in the exercise of the Court's discretion. It seems to me that approach allows a proper balance between not disenfranchising Morgan Stanley, FSI and their third party investors, and allowing the Court to assess the impact of this matter on the vote at the second Court hearing and, where this approach is to be adopted, these matters do not give rise to any reason not to convene the scheme meeting.
9. Third, Mr Thomas points out that cl 11.2 of the SID provides for Link to pay Bidder a break fee of $11,088,816 in specified circumstances (Break Fee). He submits and I accept that the circumstances in which that break fee is payable do not depart from common practice, and he points out that a break fee is not payable merely because the resolution submitted to the scheme meeting is not approved by the required majorities. Mr Thomas also points out that the break fee represents just under 1% of the equity value of Link (based on the transaction consideration of $2.26) which accords with the guideline in the Australian Takeovers Panel Guidance Note 7, Deal protection (8 August 2023). I accept that a break fee of this character is commonplace in schemes of arrangement and accepted by the case law, and this matter does not give rise to any reason not to convene the scheme meeting.
10. Fourth, Mr Thomas addresses the funding of the scheme consideration and performance risk. He points out that cl 5.12 of the Scheme adopts the conventional mechanism of making the transfer of Link shares to Bidder conditional on the payment of the total scheme consideration into a trust account maintained by Link, and that Link shareholders are thereby protected against the risk that their shares are transferred without receiving the scheme consideration. Bidder has also entered a deed poll entered in favour of Link shareholders which is governed by New South Wales law and I have noted the position as to its execution above. Mr Thomas submits and I accept that these are well-established means of managing performance risk: Re ELMO Software Pty Ltd [2023] NSWSC 12 at [27]-[28]. The Bidder is here not a special purpose vehicle and the available funds on its balance sheet are comfortably sufficient to fund the scheme consideration. This matter also does not give rise to any reason not to convene the scheme meeting.
11. Fifth, Mr Thomas draws attention to the means by which the scheme materials will be sent to Link shareholders, which is now commonplace in scheme meetings and, as Mr Thomas points out, is consistent with ss 110D-110E of the Act.
12. Sixth, Mr Thomas notes that Link will send a reminder to vote email, reminder to vote text message and reminder to vote postcard to Link shareholders and has arranged for a third party, Link Market Services, to operate an inbound shareholder information line. A draft of the "Inbound Q&A script" is in evidence. Link also proposes that Orient Capital will make phone calls to the largest 12,000 Link shareholders in order to raise awareness of the transaction, ensure that Link shareholders have all necessary documentation and answer any questions shareholders may have about the process of the scheme, and draft scripts for those calls were also in evidence. Mr Thomas submits that those scripts do not travel beyond the information in the proposed scheme booklet and present information in a balanced manner and draw attention to advantages and disadvantages of the scheme and encourage shareholders to read the scheme booklet in its entirety. Consistent with current scheme practice, Link draws these proposed communications to the Court's attention, although no orders are sought approving them. These matters also do not give rise to any reason not to convene the scheme meeting.
13. For these reasons, I was satisfied that I should make orders to convene the scheme meeting and make the associated orders and I made orders, on the day of the hearing, in accordance with the short minutes of order initialled by me and placed in the file.

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