In the matter of Tabcorp Holdings Limited [2022] NSWSC 448

Affidavit evidence

1. Tabcorp reads the affidavit dated 22 February 2022 of Mr Luke Hastings, a partner in the firm of solicitors acting for Tabcorp in the proceedings, which sets out the background to the proposed scheme. I have drawn on his evidence in selling out the background to the proposed scheme above. Mr Hastings also refers to an announcement made by Tabcorp to ASX, on 5 July 2021, of its intention to undertake a demerger of its lotteries and Keno business, and outlines the manner in which that demerger would be effected.
2. By an affidavit dated 24 March 2022, Mr Steven Gregg, who is a non-executive director and chair of the board of Tabcorp, indicates his consent to act as chair of the proposed scheme meeting and discloses his interest in certain fully paid ordinary shares in the capital of Tabcorp, and also indicates that, if the scheme proceeds, he intends to retire from the board of Tabcorp and become a non-executive director and chair of TLC. By his affidavit dated 24 March 2022, Mr Bruce Akhurst consents to act as chair of the scheme meeting, if Mr Gregg is unable to do so, indicates that he also holds an interest in Tabcorp ordinary shares and that, if the demerger proceeds, he intends to become the chair of Tabcorp.
3. By his affidavit dated 29 March 2022, Mr Daniel Reid, who is the state manager, Victoria, of Link Market Services Ltd, which has been engaged by Tabcorp to assist with the scheme, outlines the manner in which proposed meetings would be conducted as hybrid meetings, the process for dispatch of the materials including electronic and hard copy dispatch, and describes the platform which would be adopted for the meeting and the process for voting by Tabcorp shareholders who attended the meeting in person.
4. By his affidavit dated 25 March 2022, Mr Patrick McGlinchey, who is the chief legal and risk officer of Tabcorp, refers to Tabcorp's corporate structure and the manner in which the proposed demerger of its lotteries and Keno business would be implemented; he outlines the consideration of the proposed scheme by the Tabcorp board, the retainer of an independent expert to consider that scheme and the conditions precedent to the scheme, and the verification process of the demerger booklet; and he notes that it is not proposed that payments or other benefits would be given to Tabcorp directors or executive officers as compensation for loss of or in connection with their retirement from office as a consequence of the demerger, other than to Mr Attenborough and two other executives who would cease employment as a result of the demerger. He also addresses the position in respect of Tabcorp's incentive plans for senior executives and management and in respect of Mr Attenborough. He also referred to a limited assurance report which had been prepared by Ernst & Young in respect of the scheme and addressed several other matters relating to the implementation of the scheme.
5. By a second affidavit dated 29 March 2022, Mr McGlinchey annexed a set of presentation slides prepared by Tabcorp in relation to the demerger, which he correctly noted largely mirrored the content of the demerger booklet, and provided an overview of the demerger and anticipated position of TLC and Tabcorp following the demerger. Tabcorp properly sought approval for the use of the presentation slides in presentations to investors after the Court had convened the scheme meeting.
6. By her affidavit dated 25 March 2022, Ms Jaye Gardner, who is a director of Grant Samuel & Associates Pty Ltd, referred to the preparation of an independent expert's report by Grant Samuel in respect of the proposed demerger, and confirmed that she and her colleague Mr Wilson held the opinions set out in the report, have reviewed the Expert Witness Code of Conduct and made all inquiries which they believe were desirable and appropriate and that no matters of significance which they regarded as relevant had, to their knowledge, been withheld from the Court, and also confirmed that they had prepared the report having regard to applicable ASIC regulatory guidance.
7. By his affidavit dated 28 March 2022, Mr Rodd Levy, a partner in the firm of solicitors acting for Tabcorp in respect of the scheme, outlined dealings with ASIC and ASX in respect of regulatory relief, correspondence with ASIC in respect of the scheme and Tabcorp's board approval for the scheme. By a letter dated 29 March 2022 (Ex P1), ASIC in turn confirmed that it had at least 14 days' notice of the hearing and a reasonable opportunity to examine the terms of the proposed scheme and explanatory documents, and did not currently propose to appear to makes submissions or intervene to oppose the scheme at the first Court hearing. It reserved its position as to s 411(17)(b) of the Act to the second Court hearing, in accordance with its usual practice. Mr Levy's affidavit in turn exhibited the draft demerger booklet and Mr Jackman reviewed the content of that booklet in the course of the hearing.

Applicable principles

1. Mr Jackman refers to Re Coca-Cola Amatil Ltd [2021] NSWSC 270 at [11], where I observed that the test commonly applied by Australian Courts in deciding whether to convene a scheme meeting or meetings is that articulated by Street CJ (with whom Hutley and Samuels JJA agreed) in FT Eastman & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 and 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. He also refers to my summary of the applicable principles for a first Court hearing in Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [25]-[27]: "It is, of course, well-established that the Court will order the convening of a scheme meeting and approve a draft explanatory statement if it is satisfied that the plaintiff is a Part 5.1 body; the proposed scheme is an arrangement within the meaning of s 411 of the Corporations Act; the scheme booklet will provide proper disclosure to members; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions and has had 14 days' notice of the proposed hearing date; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) have been met; 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: Re Staging Connections Group Ltd [2015] FCA 1012 at [19]- [20]; Re Atlas Iron Ltd [2016] FCA 366; (2016) 112 ACSR 554 at [30]; Re Duet Finance Ltd [2017] NSWSC 415 at [15]; Re Villa World Ltd [2019] NSWSC 1207 at [15]. The Court will not ordinarily summon a meeting at the first court hearing unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the 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 Commissions v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. In Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 at [36] and [44] (cited with apparent approval in Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [58]), French J observed 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 hearing, the Court is not concerned 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 consideration: Re Abacus Funds Management Ltd [2005] NSWSC 1309; (2006) 24 ACLC 211 at [23]; Re Villa World above at [18]. The Court is also not required to be satisfied that no better scheme could have been proposed, but with whether sensible business people might consider the arrangement proposed is of benefit to members: Centrebet International Ltd [2011] FCA 870 at [29]; Re SAI Global Ltd [2016] FCA 1312 at [18]; Re BIS Finance Pty Ltd [2017] NSWSC 1713 at [22]."
2. Mr Jackman in turn draws attention to an ASIC company search for Tabcorp, which provides formal evidence that Tabcorp is a Pt 5.1 body; Tabcorp's constitution; and the text of the proposed scheme which provides prima facie evidence that the demerger scheme is an "arrangement" within the meaning of s 411 of the Act: Re Amcor Ltd (2000) 34 ACSR 199; [2000] VSC 157; Re CSR Ltd (2003) 45 ACSR 34; [2003] FCA 82; Re Orica Ltd [2010] VSC 231; Re Straits Resources Ltd [2010] FCA 1467; Re Foster's Group Ltd [2011] VSC 93 at [10]; Re Alchemia Ltd [2012] FCA 927; Re Texon Petroleum Ltd [2013] FCA 29; Re Staging Connections Group Ltd [2015] FCA 1012 at [55]; Re National Australia Bank Ltd [2016] VSC 62 at [57], [58] and [59(g)]; Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd [2018] WASC 308 at [83]; Re Westfield Corp Ltd [2018] NSWSC 584 at [45]; Re Graincorp Ltd [2020] FCA 143 at [21]; Re Cassini Resources Ltd; Ex Parte Cassini Resources Ltd [2020] WASC 317 at [48]. He points out that the DID also provides prima facie evidence that Tabcorp has committed itself to propounding the scheme and that it is bona fide and has been properly proposed: Re Staging Connections Group Ltd above at [61]. He also points to the affidavit evidence of verification of the factual information related to Tabcorp in the demerger booklet and the evidence of consents to act as chairperson and alternate chairperson of the proposed scheme meeting.
3. Mr Jackman notes that the Court's jurisdiction to make an order convening a scheme meeting under s 411(1) of the Act is conditional upon the matters set out in s 411(2), which requires that the Court be satisfied that ASIC has been given 14 days' notice of the hearing, or such lesser period of notice as the Court or ASIC permits and that ASIC has had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement and to make submissions to the Court. There is evidence to establish these matters and ASIC has in any event confirmed them in its letter dated 30 March 2022 to which I referred above.
4. Mr Jackman also notes that the Tabcorp board unanimously considers that the demerger is in the best interests of Tabcorp shareholders and unanimously recommends that Tabcorp shareholders vote in favour of the capital reduction resolution and scheme resolution. He also points out that Grant Samuel & Associates Limited has prepared an independent expert's report and has expressed the opinion that the proposed demerger is in the best interests of Tabcorp's shareholders and the proposed capital reduction does not materially prejudice the ability of Tabcorp to pay its existing creditors. Mr Jackman also points out that TLC's obligations in respect of the proposed scheme are supported by a deed poll ("Deed Poll") in favour of Tabcorp shareholders, by which it undertakes to take the steps attributed to it under the DID and scheme, including applying for admission to the ASX's Official List and for official quotation of its shares on the ASX, and updating its share register and confirming allotments of TLC shares to Tabcorp shareholders as contemplated by the scheme.
5. I am satisfied that there is no reason to doubt that the demerger booklet provides proper disclosure to Tabcorp shareholders, and there has been a verification and due diligence process. Subject to the particular issues which I address below, there is no reason to doubt that the proposed demerger scheme is bona fide and properly proposed and could be approved at the second Court hearing if it receives the requisite shareholder approvals, and I am satisfied that the orders sought should be made in respect of the proposed scheme.

Despatch of scheme documents and conduct of the scheme meeting

1. It is proposed that Tabcorp shareholders who have elected to receive shareholder communications electronically will be notified by email of the scheme meeting, and Tabcorp's constitution provides (cl 121) that notices to shareholders may be provided electronically in these circumstances. Mr Jackman submits and I accept that, even prior to the enactment of s 253RA of the Act, it had become commonplace for electronic mail-out orders to be made by the Court in relation to notices of scheme meetings: Re Ardent Leisure Ltd [2018] NSWSC 1665 at [27]; Re ERM Power Ltd [2019] NSWSC 1502 at [26]; Re TPG Telecom Ltd [2020] NSWSC 772 at [32]; Re Coca-Cola Amatil Ltd above at [26]; Re BINGO Industries Ltd [2021] NSWSC 798 at [29]. That section, which was inserted by the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Cth), permits notices of meetings to be given by shareholders by means of an electronic communication providing specified information. Here, the email to be sent to Tabcorp shareholders who have elected to receive shareholder communications electronically will contain instructions and URL links to the demerger booklet and a "Virtual Meeting Online Guide", allowing access to online location through which the scheme participant can lodge proxy instructions, submit questions prior to the scheme meeting and general meeting, and electronically lodge election instructions to participate in the sale facilities.
2. Tabcorp shareholders who have not elected to receive shareholder communications electronically, or who have elected to receive electronic communications but do not have a valid email address, will be sent a letter providing directions to a website where the demerger booklet (which contains the Notices of Meeting) and Virtual Meeting Online Guide can be viewed or downloaded. Mr Jackman submits and I accept that this is permitted under s 253RA(2) of the Act, which is intended to cover both electronic and traditional means of delivering notices to shareholders. Shareholders who receive that letter will also be sent hard copies of the sale facility form, general meeting proxy form, scheme meeting proxy form and two prepaid return envelopes.
3. Mr Jackman points out that Tabcorp also proposes to dispatch "reminder to vote" emails to Tabcorp shareholders, and that course has also been permitted in other schemes including those considered in Re rhipe Ltd [2021] NSWSC 1170, Re Australian Leisure and Entertainment Property Management Ltd [2021] NSWSC 1431 and Re Sydney Airport Limited and the Trust Company (Sydney Airport) Limited as responsible entity for Sydney Airport Trust 1 [2022] NSWSC 25 at [42] ("Re Sydney Airport"). The proposed orders also seek the Court's approval of a presentation to be given to Tabcorp shareholders and released on the ASX. This approach is consistent with the authorities that Court approval should be sought in respect of any proposed supplementary disclosure to be made concerning a proposed scheme where the Court is being called upon to approve the explanatory material: Re Centro Retail Ltd [2011] NSWSC 1320 at [11]; Re Investa Listed Funds Management Ltd [2016] NSWSC 344 at [4]; Re Walsh & Company Investments Ltd [2020] NSWSC 1746 at [66]. Mr Jackman submits and I accept that approval should be given where the content of the proposed presentation largely mirrors that contained, in more detail, in the demerger booklet and it prominently directs recipients to read the demerger booklet before making any voting decision in respect of the proposed demerger.
4. The proposed general meeting and scheme meeting relating to the proposed demerger will be held as hybrid meetings, in person and virtually, and Tabcorp shareholders or their representatives who participate in the meetings by the online platform will be able to watch the meetings, cast an online vote and ask questions online. The virtual aspect of that meeting is permitted by s 253Q of the Act where, as here, the technology used gives members as a whole a reasonable opportunity to participate without physically being present in the same place.

Particular aspects of the scheme

1. Mr Jackman also draws attention to several particular aspects of the scheme, adopting the approach required by Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at 603, and submits that none of these aspects should be of concern to the Court to prevent the grant of an order to convene the scheme meeting. The proposed capital reduction
2. First, Mr Jackman notes that the proposed Scheme is conditional upon the approval of the capital reduction resolution at the proposed general meeting. He points out that, under 256B(1)(b) of the Act, a company may only reduce its capital if the reduction "does not materially prejudice the company's ability to pay its creditors", and draws attention to the observation of the Full Court of the Federal Court in Re CSR Ltd (2010) 77 ACSR 592 at [65] that the first Court hearing was "ill-suited" to determining whether a proposed capital reduction would have that effect, and (at [67]) that: "There being no sufficient basis for concluding that the scheme could not ultimately be approved, the discretion should have been exercised to allow the shareholders to vote on the proposal and the objectors to mount, if they choose to do so, a better informed and more focused challenge to the reduction of capital by the means open to them, either pursuant to s 1324 of the Act, or by way of opposition on the application for final approval under s 411(4)(b) of the Act".
3. I will take that approach, although Mr Jackman also points to the independent expert's view that the proposed demerger will not prejudice Tabcorp's ability to pay its creditors. Mr Jackman also submits, by reference to authority, and I accept that the capital reduction is not selective in nature by reason only that Ineligible Overseas Shareholders will ultimately receive cash for their TLC shares: Re ETRADE Australia Ltd (1999) 30 ACSR 516 at 517; Re Straits Resources Ltd above at [30]; Re Alchemia Ltd above at [30]. Treatment of Tabcorp performance rights, incentive plans and Mr Attenborough's position
4. Second, Mr Jackman draws attention to section 7.1.5 of the demerger booklet, which indicates that it is not proposed that any payment or other benefit will be made or given to any Tabcorp director, secretary or executive officer of Tabcorp, or any body corporate related to Tabcorp, as compensation for loss of, or as consideration for or in connection with, their retirement from office as director, secretary or executive officer of Tabcorp or a body corporate connected with Tabcorp as a consequence of, or in connection with, the demerger, other than to Mr Attenborough and two other executives who will cease employment as a result of the demerger. I also referred above to Mr McGlinchey's evidence in that regard
5. Third, Mr Jackman also points out that, as described in section 5.7 of the demerger booklet, Tabcorp operates four types of incentive plans for senior executives and management as an incentive and reward which will be affected by the proposed demerger. It operates a general employee share plan under which employees acquire restricted shares on a tax-exempt and/or tax deferred basis, restricted for a period of three years. Where an employee will be transferred to the TLC group, or another entity, as part of the merger, any applicable restrictions on the shares will be released in accordance with their original terms. The restrictions on those shares for ongoing Tabcorp employees will not be affected and the restricted shares will be subject to the proposed demerger, so that such shareholders will be allocated one TLC share for each Tabcorp share, as noted in section 5.7.1.2 of the demerger booklet.
6. Tabcorp also operates a retention plan established in 2021, under which a number of key employees were granted restricted shares, subject to a two year vesting period. Those employees who are or will be employed by the TLC group will forfeit any restricted shares in Tabcorp, which will be replaced with restricted TLC shares of an equivalent value on the same terms and conditions, as also noted in section 5.7.2.1 of the demerger booklet. The restrictions on those shares for ongoing Tabcorp employees will again not be affected and the restricted shares will be subject to the demerger, so that such shareholders will be allocated one TLC share for each Tabcorp share which will also be subject to restriction periods, as set out in section 5.7.2.2 of the demerger booklet.
7. Tabcorp operates a short-term performance plan ("STPP") under which a portion of STPP awards of participants is deferred into restricted shares, which are subject to a two-year service condition. The restrictions on these shares will be released on the proposed demerger and these shares will be subject to the demerger, as noted in section 5.7.3 of the demerger booklet. Under a long term performance plan, senior managers are also entitled to Tabcorp performance rights ("Performance Rights"), and each Performance Right is a right to receive one Tabcorp share subject to meeting performance conditions over a three-year period. The performance conditions will be waived prior to the demerger and a pro-rata portion of the Performance Rights will vest with (based on the portion of the service period that has elapsed) with the remainder lapsing, as set out in section 5.7.4 of the demerger booklet.
8. The treatment of these incentive plans is disclosed in the scheme booklet and provides no reason not to convene the proposed scheme meeting. Mr Jackman also submits and I accept that holders of incentives and performance rights are not in a separate class by reason only that they hold such rights: Re Foster's Group Ltd (No 2) [2011] VSC 547 at [38]-[43]; Re Sydney Airport at [34].
9. Fourth, Mr Jackman draws attention to section 7.1.5 of the demerger booklet, which indicates that Mr Attenborough, the managing director and chief executive officer of Tabcorp, will retire as a director of Tabcorp on or around the implementation of the demerger and cease employment with New Tabcorp on or around 1 July 2022. The demerger booklet discloses Mr Attenborough's interests in Tabcorp shares relevant to his recommendation made in favour of the demerger. Mr Jackman notes that, prior to implementation of the demerger, Mr Attenborough's Performance Rights and TLC shares will be treated in the same way as those of other executives and employees. Mr Attenborough will also be paid an amount of $1,333,333 in lieu of a portion of his notice period on ceasing employment, in addition to any other statutory entitlements, and will not receive any other termination payments.
10. The demerger booklet records the Tabcorp board's view that, despite these arrangements, it is appropriate for Mr Attenborough to make a recommendation in relation to the demerger resolutions given his knowledge of Tabcorp and the industry, and that Tabcorp shareholders would wish to know Mr Attenborough's views in relation to the demerger, and Mr Attenborough also considers that it is appropriate for him to make a recommendation in relation to the demerger resolutions. Mr Jackman submits and I accept that these matters are sufficiently disclosed and do not prevent Mr Attenborough from making a recommendation: Re Villa World Ltd [2019] NSWSC 1207 at [40], Re Afterpay Ltd [2021] NSWSC 1435 at [40]-[43]; Re Ausnet Services Ltd [2022] NSWSC 21 at [28] - [30]. Performance risk
11. Fifth, Mr Jackman notes that the Deed Poll is to be executed by TLC, but not Tatts, which presently holds the shares in TLC. He submits and I accept that, as in Re Wesfarmers Ltd [2018] WASC 308 at [121]ff, any performance risk is acceptably low where the Deed Poll is enforceable by scheme participants in the usual way; the scheme of arrangement provides that the Tabcorp (the holding company) will enforce the Deed Poll against Tatts (the relevant subsidiary) on behalf of and as agent and attorney of Tabcorp shareholders and that it will procure the registration of the TLC shares to be transferred and for holding statements to be issued where required (cll 3.4, 3.5 and 6.8 of the scheme of arrangement); the DID contains covenants by TLC in favour of Tabcorp by which TLC agrees to take all necessary steps to implement the demerger, including registering the transfers under the scheme (cl 6 of the DID); TLC is a wholly owned subsidiary of Tabcorp, with an intermediate holding company, Tatts; and Tabcorp is bound by the terms of the scheme of arrangement to procure Tatts to effect the necessary transfers to scheme participants (cl 3.4). Subsection 411(17) of the Act
12. Mr Jackman also submits and I accept that the Court should address the position under s 411(17) of the Act is on the application to approve a scheme at the second court hearing: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [23]-[31] and, for a recent example of the many cases following that decision, Re Sydney Airport at [44].

Orders

1. For these reasons, I was satisfied that the proposed demerger scheme was an arrangement for the purposes of s 411 of the Corporations Act and that, having regard to the evidence and matters to which I referred above, an order should be made convening the scheme meeting and approving the demerger booklet for distribution to shareholders. I made the orders sought by Tabcorp at the conclusion of the first Court hearing on 30 March 2022.

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: 14 April 2022