In the matter of Mortgage Choice Limited [2021] NSWSC 819

Supreme Court of NSW|2021-06-17|Before: Black J, Mr J

Solicitors: Ashurst Australia (Plaintiff) King & Wood Mallesons (Acquirer) File Number(s): 2021/109964

Nature of the application

By an Originating Process filed on 20 April 2021, the plaintiff, Mortgage Choice Limited ("Mortgage Choice"), sought orders for approval of the scheme of arrangement between Mortgage Choice and scheme shareholders under s 411(4)(b) of the Corporations Act 2001 (Cth) and an exemption from compliance with the requirement of s 411(11) of the Act pursuant to s 411(12) of the Act.
At the first Court hearing on 6 May 2021, the Court made orders for Mortgage Choice to convene and hold a meeting of its shareholders for the purpose of considering and, if thought fit, agreeing to (with or without modification) the scheme and related matters, including approving a scheme booklet for distribution to Mortgage Choice shareholders in connection with the scheme. The scheme meeting was then held on 10 June 2021.
I am satisfied that the scheme was approved by the requisite majorities of Mortgage Choice shareholders for the purposes of s 411(4)(a)(ii) of the Act, namely 93.23% of Mortgage Choice Shareholders present and voting (either in person or by proxy) voted in favour of the scheme; and 99.06% of the votes cast on the resolution at the Scheme Meeting (either in person or by proxy) were in favour of the Scheme. Excluding Treasury Shares held by Pacific Custodians Pty Limited in its capacity as trustee of the Mortgage Choice Limited Employee Incentive Trust, which were not to be voted at that meeting, there was voting with respect to 79,577,936 of the Mortgage Choice shares at the scheme meeting, which is a voting participation rate of 64% by shares. Of the 3,844 Mortgage Choice shareholders on the register of members as at the Scheme Meeting Record Date which were able to vote at the scheme meeting, and again excluding Pacific Custodians, 502 Mortgage Choice shareholders voted at the meeting, which is a relatively low voting participation rate of 13% by members.

Affidavit evidence

Mortgage Choice relied on the affidavit dated 9 June 2021 of Mr Nicholas O'Hagan, who is a client-relationship manager at Link Market Services Limited ("Link") in respect of the application, which dealt with the dispatch of scheme documents by post and by email to shareholders who had nominated an email address. By a second affidavit dated 15 June 2021, Mr O'Hagan addressed the receipt and recording of proxies, the process for registration of shareholders at the scheme meeting and the process for voting at the scheme meeting, and confirmed the results of the poll undertaken at that meeting.
By an affidavit dated 10 June 2021, Ms Vicki Allen, who is the independent non-executive chair of the board of directors of Mortgage Choice gave evidence of the conduct of the scheme meeting and the outcome of the scheme meeting at which over 93% of scheme shareholders by number and over 99% of scheme shareholders by number of votes cast voted in favour of the scheme.
By an affidavit dated 16 June 2021, Mr Scott Stierli, who is the general counsel and company secretary of Mortgage Choice, referred to the registration of the scheme booklet with the Australian Securities and Investments Commission ("ASIC") and to a minor error in the scheme booklet, as provided to scheme shareholders, which recorded that a director did not directly hold a relatively small number of shares in Mortgage Choice and was unable to vote, or procure the vote, of those shares in respect of the scheme. In the event, it emerged that the director was able to vote or procure the vote of those shares and he did so. That matter was immaterial to the outcome of the resolution at the scheme meeting and provides no reason not to approve the scheme. Mr Stierli also confirmed that, as had been contemplated at the first Court hearing, certain shares held by Pacific Custodians Pty Ltd in its capacity as trustee of the Mortgage Choice Limited Employee Incentive Trust Deed were not voted at the scheme meeting. By a second affidavit dated 16 June 2021, Mr Stierli set out a question which had been asked by an attendee at the scheme meeting, in relation to franking credits held by Mortgage Choice and the response given to that question, which indicated that those franking credits would remain within Mortgage Choice and, to that extent, become available to the acquirer, and the shareholder's expression of disappointment as to that matter. That was the necessary consequence of the structure of the scheme approved by shareholders and is not reason not to approve the scheme.
By an affidavit dated 16 June 2021, Ms Nicole Gardner, who is a solicitor acting for Mortgage Choice in respect of the scheme, referred to the publication of an advertisement of the second Court hearing and the provision of documents to ASIC in respect of that hearing. By a second affidavit dated 16 June 2021, Ms Gardner noted that she had not received notice that any person intended to appear at the second Court hearing to oppose the scheme, and there was no such appearance at the hearing.
Mortgage Choice also tendered certificates executed by each of Mortgage Choice and REA Group Limited confirming the satisfaction of conditions precedent in respect of the scheme, other than in respect of the Court's approval of the scheme. Mortgage Choice also tendered a letter dated 17 June 2021 by which ASIC confirmed, in common form, that it had no objection to the proposed scheme for the purposes of s 411(17) of the Corporations Act.

Mortgage Choice's submissions and determination

Mr Svehla, who appears for Mortgage Choice, draws attention to the well-settled principles which govern the exercise of the Court's discretion whether to approve a scheme: Re NRMA Ltd (2000) 33 ACSR 595 at 607; [2000] NSWSC 82; Re Seven Network Ltd (No 3) (2010) 77 ACSR 701 at 706; [2010] FCA 400; Re Central Pacific Minerals NL [2002] FCA 239 at [12]; Re Aveo Group Ltd [2019] NSWSC 1679 at [15]. He observed that the Court's task is to determine whether all the conditions required by s 411 of the Act have been complied with; whether the majority of members have acted in good faith and not for any illegitimate purpose; and whether the proposal is at least fair and reasonable that an intelligent and honest person, who is a member and acting alone in respect of his or her interest as a member, might approve it. He rightly submits that, in the exercise of its discretion to approve a scheme, the Court will generally take the view that the shareholders are the best judges of whether an arrangement is to their commercial advantage, and that it is sufficient for the Court to reach the view that the proposal embodied in the scheme is fair and reasonable and that intelligent, honest and reasonable persons acquainted with the terms of the scheme would be prepared to enter into it.
Mr Svehla also refers to my summary of the factors as to which the Court will typically wish to be satisfied in Re GBST Holdings Limited [2019] NSWSC 1503 at [11], as compliance with the Court's orders convening a meeting of members; whether the meeting of members approved the scheme with the requisite majorities; whether all other statutory requirements have been satisfied; whether 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; 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; and whether there was full and fair disclosure to members of all information material to the decision whether to vote for or against the applicable scheme.
Mr Svehla points to a minor issue which had arisen in the dispatch of the scheme booklet, namely that Mortgage Choice's evidence and written submissions at the first Court hearing had indicated that the covering letter sent to those Mortgage Choice shareholders who received documents by post would contain the address of a website where Mortgage Choice shareholders could access the scheme booklet, but that had not been adequately reflected in the orders proposed by Mortgage Choice and made by the Court at the first hearing. I accept that the non-compliance with that aspect of those orders was a procedural irregularity which does not invalidate the resolutions. No issue otherwise arises in respect of the dispatch of the scheme booklet or the conduct of the scheme meeting.
Mr Svehla submits, and I accept, that 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, as members of Mortgage Choice have done. He points out that the Scheme will result in the acquisition of all ordinary shares in Mortgage Choice by REA Financial Services Holding Co Pty Limited, a wholly owned subsidiary of REA Group Limited, with scheme Shareholders receiving cash consideration of $1.95 per share; and that Mortgage Choice will then be delisted. The terms of that proposal were set out in the scheme booklet; the scheme was unanimously recommended by Mortgage Choice's directors in the absence of a superior proposal and subject to the independent expert continuing to conclude that the scheme was in the best interests of Mortgage Choice shareholders; the independent expert prepared a report which concluded that the scheme is fair and reasonable and therefore in the best interests of Mortgage Choice shareholders in the absence of a superior proposal; and no superior proposal emerged and the independent expert did not change or qualify his opinion prior to the scheme meeting.
Although I noted above that the attendance rate of 13% of Mortgage Choice shareholders by number was not particular high, Mr Svehla points out that, in Re TriAusMin Ltd (No 2) [2014] FCA 833 at [10]-[12], a scheme was approved where 10.94% of shareholders had voted 52.9% of the shares. Farrell J there observed that: "Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the court at the second court hearing to consider the number of shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme: Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7] and Re Seven Network Ltd (No 3) (2010) 267 ALR 583 (Re Seven Network Ltd) at [61] per Jacobson J; apathy should not be presumed to be antagonism: Re Matine Ltd (1998) 28 ACSR 268 at 295 per Santow J.
Mr Svehla submits and I accept that there is no reason to think that Mortgage Choice shareholders were not provided the appropriate opportunity to attend and vote at the scheme meeting, and no reason to infer that there was a protest vote, and such apathy should not be presumed to be antagonism. An advertisement of the second hearing before this Court was published in a national newspaper, no notice of intention to appear at the second Court hearing was received, and no shareholder appeared to oppose the scheme at that meeting. Mortgage Choice also tendered deeds executed by each of Mortgage Choice and REA Group Limited at the second Court hearing confirming satisfaction or waiver of the conditions precedent in cl 3.2 of the Scheme Implementation Agreement, other than those conditions relating to the Court's approval of the scheme and the lodgement of the Court's orders with ASIC. As I noted above, a letter from ASIC was tendered at the second Court hearing confirming that it has no objection to the scheme under section 411(17)(b) of the Act. I was satisfied that an order exempting Mortgage Choice from compliance with s 411(11) of the Act should be made, where the scheme would not alter Mortgage Choice's constitution and Mortgage Choice was shortly to be delisted.
For these reasons, I was satisfied that Mortgage Choice has made out its case for approval of the scheme under s 411(4)(b) of the Act and I made the orders it sought 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: 06 July 2021

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