Solicitors:
Norton Rose Fulbright (Plaintiff)
File Number(s): 2017/12556
[2]
Judgment - ex tempore
By my judgment delivered on 31 January 2017 [2017] NSWSC 140 I ordered under s 411 of the Corporations Act 2001 (Cth) that the Plaintiff, Pulse Health Limited ("PHL") convene a meeting of shareholders for the purposes of considering, and if thought fit, agreeing to a proposed scheme of arrangement between PHL and its members and made several associated orders. I set out the background to the scheme in that judgment and need not repeat the matters there dealt with.
By further order made on 21 March 2017, for reasons indicated in my ex tempore judgment delivered on that date, I vacated the existing scheme meeting at PHL's request to allow supplementary disclosure to shareholders. That supplementary disclosure related to, broadly, a transaction between Healthe Care Australia Pty Ltd ("Healthcare"), the proponent of the scheme involving PHL, and Evolution Health Care Partners Pty Ltd ("Evolution"), as trustee of a trust, under which Healthe Care had committed to acquire two hospitals and a day surgery. There are associations, or common linkages, between Evolution and Sante Capital Investments Nominees Pty Ltd ("Sante Capital") as trustee of the Sante Capital Number 1 Trust, which is a major shareholder in PHL, and Sante Capital has also given an undertaking by deed poll, dated 17 March 2017, to Healthe Care to vote in favour of the scheme. That undertaking has the same date as the share sale agreement between Evolution and Healthe Care, also executed on 17 March 2017.
PHL now seeks an order, under s 411 and 1319 of the Corporations Act that a draft supplementary explanatory statement be approved to be sent to members of PHL in advance of a meeting to consider whether to approve the scheme, now to be held on 1 May 2017. The application is supported by an affidavit of Mr Mark Hays, the Chief Financial Officer of PHL, dated 7 April 2017, which annexes the proposed supplementary explanatory statement, which has since been amended by minor amendments. The proposed annexures to the supplementary explanatory statement include a report dated 31 March 2017 by Lonergan Edwards & Associates Ltd and a supplementary letter dated 31 March 2017 from the independent expert in respect of the scheme, Leadenhall Corporate Advisory. Mr Hays there refers to the due diligence and verification process that was adopted in respect of the supplementary disclosures which is in customary form, and to a resolution passed by the PHL board confirming their approval of the draft supplementary explanatory statement and their continued recommendation to shareholders to vote in favour of the scheme.
I have been taken to the proposed supplementary explanatory statement to shareholders which fairly draws attention to the matters which have required supplementary disclosure, including the transaction between Evolution and Healthe Care, and the association which PHL perceives to exist between Healthe Care and Sante Capital, and also draws attention to the undertaking given by Sante Capital to vote in favour of the scheme. That disclosure refers to the independent expert reports of Lonergan Edwards & Associates and Leadenhall to be provided to members of PHL and the conclusions formed by the independent expert reports and also refers to the revised date of the scheme meeting and the maintenance of the PHL board's recommendation. The supplementary explanatory statement contains a helpful summary of key points, which will draw shareholders' attention to the essential issues that need to be addressed, together with a more detailed outline of the background to the scheme, the Evolution transaction, the links between Sante Capital and Evolution, including the potential commonality of beneficiaries of trusts and of interests in the trustees of the two entities, and to the conclusion that PHL has formed, although those entities do not accept it, that those two entities are acting in concert.
That supplementary explanatory statement also makes clear, consistent with the independent expert reports that, notwithstanding these developments, Lonergan Edwards & Associates have concluded that the transaction between Healthe Care and Evolution does not confer any net benefit, in the sense of, for example, an above market price, upon Evolution, and that the valuation multiple disclosed by the Evolution transaction is consistent with the view that Leadenhall had already formed in respect of the transaction involving PHL and has not caused Leadenhall to change its view that the transaction involving PHL is fair and reasonable and therefore in the best interests of shareholders of PHL in the absence of a superior proposal. The summary of those matters contained in the supplementary explanatory statement is detailed and will draw PHL's shareholders' attention to the relevant issues and they will also have access, of course, to the independent expert reports which are to be provided as annexures to that supplementary explanatory statement.
I have also been taken, in the course of Mr Rich's and Mr Foreman's submissions for PHL, to the share sale agreement, although it seems to me that I do need no more for present purposes than note that the structure of that agreement is consistent with the basis on which the independent experts and the supplementary explanatory statement proceed including, most importantly, those aspects of the transaction which relate to its value. I have also been taken to a copy of the deed poll dated 17 March 2017, to which I referred above, by Sante Capital in favour of Healthe Care dealing with its voting commitment at the scheme meeting.
PHL also relies on an affidavit of Mr Edwards dated 7 April 2017 which exhibits Lonergan Edwards' report, which expresses the views to which I have referred above. In particular, that report considers issues both as to the value to be paid to the purchase of the relevant hospital business and to rental arrangements in respect of the relevant assets, both matters from which a net benefit to Evolution could have arisen, but concludes that such a net benefit did not arise. I have also been taken to the affidavit of Mr Norris, a director of Leadenhall, and to the letter from Leadenhall which confirms that Leadenhall maintains its view as to the transaction, as I have noted above.
By an affidavit of Ms Blakey dated 7 April 2017, she indicates her willingness to act as alternate chairman of the scheme meeting, where the person originally proposed to act as chairman will be travelling and Mr Coleman, who was previously to be the alternate chairman, will now act as chairman of the scheme meeting. An affidavit of Mr James Stewart dated 10 April 2017 confirms Mr Coleman's willingness to act as the chairman of that meeting, and also indicates that ASIC has been provided with the material to which I have referred and has indicated that it does not seek to appear to make submissions at this hearing.
Relevant issues are addressed in submissions made by Mr Rich and Mr Foreman on PHL's behalf. As I noted above, I addressed the substance of the scheme in the judgment I delivered on 31 January, and nothing in the additional material affects the substance of that arrangement. It seems to me that, as I noted in my further judgment adjourning the scheme meeting, PHL has correctly recognised that the transaction involving Healthe Care and Evolution is a matter that should fairly be drawn to the attention of shareholders in PHL, and that the supplementary explanatory statement and expert reports are sufficient to bring those matters to the attention of shareholders, and to update Leadenhall's expression of opinion in respect of the scheme. Mr Rich and Mr Foreman draw attention to the case law addressing the question of collateral benefits, most importantly the decision in Re David Jones Ltd (No 2) [2014] FCA 720; (2014) 101 ACSR 381 and in Re David Jones (No 3) [2014] FCA 753, where an issue as to a potential collateral benefit conferred on a major shareholder arose in an application for approval of supplementary disclosure and subsequently at the second court hearing. It seems to me that, as in that case, there is here no reason why the matter should not proceed to consideration at a meeting of members, not at least because one can well contemplate a possibility where members not associated with Evolution or Sante Capital vote in favour of the transaction, in a manner that may indicate that it ought to be approved at a second court hearing, irrespective of any view which Sante Capital may take or any votes which it may cast at that meeting.
My attention has also been drawn to case law addressing issues of classes and tagging in respect of the meeting of shareholders. PHL has taken the view, which seems to me to be correct, that the relevant interests do not create a difference on the rights of Sante Capital and other shareholders in PHL, such that different classes would be required, and any issues arising from any different commercial interests, assuming (for the sake of argument and contrary to PHL's submission) that any net benefit did create a different commercial interest, can readily be addressed by a tagging of the relevant votes. That course will allow an assessment of the extent to which shareholders independent of Santa Capital have voted in favour of the relevant transaction. For these reasons, it seems to me that no separate class meeting is necessary, where the difficulties associated with separate classes are well-recognised in the case law, and that tagging of votes is sufficient for the purpose. I note that the conclusions which I have reached above are consistent with, although they do not depend upon, the fact that the Australian Securities and Investments Commission has not considered it necessary to raise any concerns in respect of the scheme.
For these reasons, I make orders in accordance with paragraphs 1-6 as renumbered in the short minutes of order initialled by me and placed in the file. I also make an order that Exhibits A1, A2 and A3 be returned, on condition that they be retained by the Plaintiff or its solicitors, at least until the conclusion of the second court hearing in the matter. These orders may be entered forthwith.
[3]
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Decision last updated: 25 May 2017