In the matter of TASK Group Holdings Limited [2024] NSWSC 646

Particular aspects of the transaction

Counsel for TASK has provided detailed written submissions, a copy of which will be retained on the court file. The proposed scheme contains a number of features which are common in change of control transactions effected through a transfer scheme. None of them are exceptional although I will briefly mention several matters.
Ineligible foreign shareholders: although ineligible foreign shareholders (as defined) will have no right of election and will only be entitled to receive the cash consideration, it is well-established that they do not constitute a separate class by that reason alone: Re Hills Motorway Management Ltd [2002] NSWSC 897; (2002) 43 ACSR 101 at 104 (Barrett J).
Potential classes: the alternative consideration options under the scheme, subject to the cap on the on the maximum amount of scrip consideration, are helpfully explained in section 3.12(b) of the scheme booklet, which provides a worked example of the application of the mixed consideration election. That some TASK shareholders may elect one form of consideration over another is not class creating. All existing rights of TASK shareholders qua shareholder are the same; the rights afforded to them under the scheme are the same (except for ineligible foreign shareholders); and there is no impediment, let alone impossibility, to all shareholders consulting together with a view to their common interest: Re Hills Motorway at 104; Re Cirrus Networks Ltd [2023] NSWSC 1298 at [17].
Performance rights and options: Three types of interests have been granted or issued to employees of TASK under several employee performance plans: (i) options, (ii) deferred share rights, and (iii) restricted share units. The terms of these interests entitle the holder to have TASK shares issued to them subject to satisfaction of relevant vesting and exercise conditions. The scheme implementation agreement (cl 4.5) requires TASK to put in place arrangements to deal with these equity incentives in connection with the scheme, either by (a) causing them to vest and following vesting to transfer or issue the relevant number of TASK shares to the holder of such interests in sufficient time to allow them to participate in the scheme, or (b) making cash equivalent payments to the holders of such interests. The scheme booklet summarises in section 10.3(b) that the TASK Board has resolved, subject to: 1. obtaining a waiver of ASX Listing Rule 6.23.4 to permit amendments to the Employee Share Option Scheme - Rules (ESOS Rules) that govern the options, the Deferred Share Rights Rules that govern the deferred share rights and the 2022 Restricted Share Units Rules and 2023 Restricted Share Units Rules that govern the restricted share rights; and 2. the scheme becoming effective, to accelerate the exercise of all options and the vesting and exercise of all deferred share rights and restricted share units, such that the holders of these interests will receive TASK shares prior to the record date, and can participate in the scheme in respect of the TASK shares issued to them on exercise of the options or early vesting and exercise of the deferred share rights and restricted share units, as the case may be.
Senior counsel for TASK informed the Court that only one holder of the performance rights and options also holds TASK shares. The additional benefit to be received by one TASK shareholder (Mr Russell Bennett), who also holds restricted share units, is not class creating. That the scheme may be more financially advantageous for him than for the shareholders does not mean that he cannot consult with shareholders who are in a different position: Re Cashcard Australia Limited [2004] FCA 223; (2004) 48 ACSR 738; Re Foster's Group Limited [2011] VSC 547 at [42]. The same conclusion in relation to performance rights was reached by O'Callaghan J in Re Kidman Resources Ltd [2019] FCA 1226; (2019) 375 ALR 760 at [15], referring to observations of Robson J in Re Skilled Group Ltd [2015] VSC 789; (2015) 113 ACSR 525 at [82], which were cited with approval by Beach J in Re Healthscope Ltd [2019] FCA 542; (2019) 139 ACSR 608 at [167].
Additional restricted share units: The scheme booklet discloses in section 10.3(c) that the TASK Board has resolved, subject to shareholder approval (at an extraordinary general meeting to be held immediately after the scheme meeting), that additional restricted share units will be issued to two senior executives, namely (i) 666,667 restricted share units to Daniel Houden, and (ii) 249,615 restricted share units to Dean Houden, the general manager of the TASK division. Mr Glenn, the chief group financial officer for TASK has given affidavit evidence that these awards are the long-term incentive component of the remuneration of Daniel Houden and Dean Houden respectively. He describes these awards as retrospective awards based on their performance against key performance indicators during the financial year 2024.
The additional restricted share units to be issued to Daniel Houden and Dean Houden will be treated in the same way as existing restricted share units if the scheme becomes effective. That is, the additional 916,282 restricted share units will convert into 916,283 TASK shares upon accelerated vesting and exercise prior to the record date. There is no potential class issue, as neither Daniel Houden or Dean Houden is a shareholder of TASK and they do not have a vote at the scheme meeting.
Director's recommendation: a separate issue arises about Daniel Houden, one of the directors of TASK, making a voting recommendation with respect to the scheme in circumstances where he is the holder of restricted share units and subject to shareholder approval, will hold additional restricted share units to be issued to him prior to the record date. Whether a director who receives an additional financial benefit should make a recommendation has been the subject of some conflicting authority. The preponderance of first instance authority is that ordinarily a director's interest in the outcome does not prevent him or her from making a voting recommendation to shareholders with appropriate disclosure of the nature of that interest to allow shareholders to determine what weight they give to that recommendation in the circumstances: see, for example, Re Villa World Ltd [2019] NSWSC 1207; (2019) 139 ACSR 550 at [38]-[40] (Black J); Re DWS Ltd [2020] FCA 1590; (2020) 148 ACSR 616 at [41]-[49] (Beach J), including the cases referred to at [42].
Here, Daniel Houden's interest as holder of existing and proposed additional restricted share units is sufficiently disclosed in the scheme booklet to be sent to shareholders, including (i) a note from him that he considered a recommendation appropriate given his role in the management and operations of TASK, (ii) a note from the other directors (excluding him) they thought his disclosure was appropriate, and (ii) wherever the directors' recommendation is mentioned, a note stating that the aggregate implied value of Daniel Houden's restricted share units and proposed additional restricted share units to be issued (on conversion to TASK shares and the scheme becoming effective, assuming a mixed consideration election, with a 50/50 split) is AUD$1.2 million. I do not consider that Daniel Houden's voting recommendation is a reason not to convene the scheme meeting.
Deal protection provisions: the scheme implementation agreement contains exclusivity provisions, in the form of "no shop", "no talk" and "no due diligence" restrictions (cls 9.2, 9.3 and 9.4), a "notification of approach" obligation (cl 9.7), and a "matching right" (cl 9.8) in favour of PAR. The general approach to exclusivity provisions is well established; they will not preclude the making of orders convening a meeting of members provided: (a) they are for no more than a reasonable period which is capable of precise ascertainment, (b) they are subject to an overriding obligation not to breach director's fiduciary duties or be otherwise unlawful, and (c) adequate prominence is given to them in the explanatory statement to be sent to shareholders: Re Arthur Yates & Co Ltd [2001] NSWSC 40; (2021) 36 ACSR 758 at [9] (Santow J).
Here, the exclusivity period is capable of precise ascertainment. The longest period during which the exclusivity provisions could be anticipated to apply is some 5 months which, I am satisfied, is a period necessary to bring the current proposal to its conclusion in the ordinary course. Such a period is also within the range of periods that Courts have accepted as reasonable: Re Crown Resorts Limited [2022] FCA 367 at [38] (O'Bryan J). Adequate prominence is given to the exclusivity provisions in the scheme booklet to be sent to shareholders in section 10.11(c).
Insofar as the exclusivity provisions are directed to dealing with an unsolicited alternative merger proposal, the "no talk" and "no due diligence" restrictions and the "matching right" are all subject to TASK's Board's fiduciary and statutory obligations. Exclusivity provisions broadly in the form of these provisions are now commonplace in schemes of arrangement and are not inconsistent with the Takeover Panel: Guidance Note 7 - Lock-up devices (Guidance Note 7). The "no shop" restriction is not subject to a fiduciary carve-out; however, this is acceptable given that the transaction has been announced, and is consistent with the Panel's Guidance Note 7 and existing authorities such as: Re Macquarie Private Capital A Pty Ltd [2008] NSWSC 323 at [19]; Re Hostworks Group Ltd [2008] FCA 64 at [34].
Break fee: allied to the exclusivity provisions, a break fee of $1.3 million is payable by TASK to PAR under certain circumstances, as is a reverse break fee of $1.3 million payable by PAR to TASK under other circumstances. The evidence of Mr Day is that the reverse break fee was calculated in a commercial negotiation to mirror the break fee. Both break fees are prominently disclosed in section 1(d) of the scheme booklet in section 1(d).
The amount of the break fee payable by TASK to PAR is approximately 1 per cent of the equity value of TASK of $142.5 million prior to the announcement of the proposed scheme on 11 March 2024, based on the closing price on 8 March 2024 and the total issued share capital at that time. This level of break fee is consistent with that set out in the Panel's Guidance Note 7 at [48]. The break fee is not payable by TASK merely because shareholders vote down the scheme. It is payable where a competing proposal is announced by a third party prior to 31 August 2024 (or such other date as is agreed by PAR and TASK in writing), and within 12 months of the end date, a competing transaction completes. I do not consider the amount of the break fee is likely to affect how the TASK shareholders will vote let alone coerce them.
Performance risk: the scheme booklet states in section 5.7 that PAR expects that it will be able to satisfy its obligation to fund the cash component of the scheme consideration by a new credit facility between PAR and Blue Owl Capital Corporation, together with PAR's cash resources (which as of 31 December 2023 are referred to in section 5.10(b) of the scheme booklet). This section of the scheme booklet has been verified by PAR. An affidavit of Ms Cathy King, chief legal counsel and corporate secretary of PAR, provides an update of PAR's increase in cash resources since December 2023, by reference to PAR's 31 March 2024 filing with the US Securities Exchange Commission (par 28). The "performance risk" for TASK shareholders is addressed here by the combination of: 1. the requirement that the cash component of the aggregate scheme consideration of $0.81 per share is paid by PAR into a trust account operated by TASK as trustee for scheme participants, by no later than the business day before they are divested of their TASK shares, being the implementation date: cl 6.6(a), scheme; 2. the requirement that the scrip component of the scheme consideration being issued by PAR to scheme shareholders before 12:00 pm (or such later time as PAR and TASK may agree in writing) on the implementation date, again before they are divested of their TASK shares: cl 6.7(a), scheme; and 3. the deed poll executed by PAR and the Acquirer in favour of scheme participants.
Proposed shareholder communications: the content of TASK's proposed communications with shareholders, additional to the scheme booklet, has been put before the Court. These communications comprise the script for a shareholder information line to answer shareholders' queries, and proposed ASX announcements by TASK concerning the first and second court hearings. I have reviewed that script and the proposed ASX announcements and indicate that I have no difficulty with them.
US Securities Act of 1933: counsel for TASK informed the Court that if the scheme obtains the required statutory majority and is approved by the Court, PAR proposes to rely on the Court's approval for the purpose of qualifying for exemption from the registration requirements of the US Securities Act of 1933, s 3(a)(10) in connection with the implementation and provision of the scrip consideration under the scheme to scheme participants who are US shareholders. Disclosure of this intention is given in section 10.9 of the scheme booklet. Otherwise, this is an issue for the second court hearing: Re Permanent Trustee Co Ltd [2002] NSWSC 1177; (2002) 43 ACSR 601 at [11]-[20].

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