J.P. Morgan Operations Australia Limited v J.P. Morgan Australia Group Pty Limited, in the matter of J.P. Morgan Operations Australia Limited

YATES J: 1 The plaintiff seeks the Court's approval to a scheme which has been approved by its shareholders in general meeting. 2 On 7 April 2021, I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) for the convening of the meeting: Redflex Holdings Limited, in the matter of Redflex Holdings Ltd [2021] FCA 417 (Reasons 1). Reasons 1 explain the background to, and provide an overview of, the scheme. The reasons also address some aspects of the scheme and the underlying transaction which required particular mention. 3 On 4 May 2021, I made orders providing for the dispatch of a supplementary scheme booklet in circumstances where the plaintiff and Verra Mobility Corporation (Verra) had entered into a Deed of Amendment and Consent to amend the Scheme Implementation Agreement to provide for the payment of increased scheme consideration for the shareholders' shares: Redflex Holdings Limited, in the matter of Redflex Holdings Ltd (No 2) [2021] FCA 474 (Reasons 2). Amongst other matters, Reasons 2 discuss the procedure in contemplation for amending the scheme resolution at the proposed meeting to provide for the increased consideration. 4 Reasons 1 and Reasons 2 provide necessary background for understanding the present reasons. In the following discussion, I will adopt the same expressions and abbreviations I have previously used. 5 On the evidence before me, I am satisfied that the proposed meeting was duly convened and held in accordance with the orders made on 7 April 2021 and as contemplated in Reasons 2 insofar as those reasons discuss the procedure for amending the scheme resolution and then placing the amended resolution before the shareholders for approval. 6 The number of shareholders who attended the meeting, in person or by proxy, was 324, together holding or controlling 134,516,959 shares. The amending resolution was passed overwhelmingly by 99.8% of the votes cast on that resolution. 7 The number of shareholders who voted on the scheme resolution, as amended by the amending resolution, was 322 (22.58% of the shareholders), holding or controlling 134,499,793 shares (88.49% of the plaintiff's issued shares). Of these shareholders, 302 voted in favour of, and 20 voted against, the amended scheme resolution. Therefore, the voting majority required by s 411(4)(a)(ii)(A) was attained. The number of shares voted in favour of the amended scheme resolution was 134,231,269 (99.80% of the shares), with 268,524 (0.20% of the shares) voted against the amended scheme resolution. Therefore, the voting majority required by s 411(4)(a)(ii)(B) was attained. 8 ASIC has provided a letter stating that, under s 411(17)(b) of the Act, it has no objection to the scheme under Pt 5.1 of the Act. 9 The scheme, as approved by the shareholders, is expressed to be conditional upon the satisfaction of certain conditions precedent. One such condition is that, before 8.00 am on the Second Court Hearing Date (as defined in the Scheme Implementation Agreement), Verra obtains the approval of the General Authority for Competition in the Kingdom of Saudi Arabia (GAC) in respect of the scheme in accordance with Article 11(1) of the Saudi Competition Law or the period for such approval lapses in accordance with Article 11(2), either without conditions or with conditions reasonably satisfactory to Verra. 10 Attempts to obtain this approval, before the stipulated time, have been unsuccessful. The evidence before me is that the application for approval is a two-stage online application process. Verra's lawyers in Saudi Arabia lodged an initial application for approval on 25 February 2021. They subsequently completed and filed other forms for the second stage of the process. On 3 May 2021, these lawyers informed the plaintiff's lawyers in Sydney, by email, that GAC approval was not expected before the Eid Al Fitr holiday period (6 May to 17 May 2021). Later information suggests that the date for a decision could be around 27 May 2021, although this is not certain. 11 A copy of the 3 May 2021 email was sent to Mr Durham, the plaintiff's Group General Counsel and Company Secretary. It was received in his inbox late in the night on 3 May 2021 and read by him shortly before 7.25 am the next day, on 4 May 2021. 12 The news that GAC approval was not expected before the Eid Al Fitr holiday period required the plaintiff and Verra to consider how to address what was a significant problem, given the looming scheme meeting on Monday, 10 May 2021 and the need for GAC approval to be obtained before 8.00 am on the day of the second court hearing. Under the terms of the Scheme Implementation Agreement the requirement for GAC approval could not be waived. 13 Early in the morning (1.47 am) on Friday 7 May 2021, the last business day before the holding of the convened meeting, Verra's lawyers in Sydney received word that Verra was prepared to proceed with the meeting on the basis that, if the shareholders approved the scheme at the meeting, the Court would be asked, at the second court hearing, to approve the scheme with an amendment, made under s 411(6) of the Act, that GAC approval would become a condition subsequent, not a condition precedent to court approval. 14 It is appropriate that I mention the overall significance of GAC approval to the transaction. Traffic Operating Systems (Saudi Arabia), LLC is the plaintiff's subsidiary in Saudi Arabia. It was originally established to operate an automated traffic violation processing business under a contract with a counterparty acting on behalf of the Saudi Arabian Government. The operation under the contract ceased on 31 January 2017, but the plaintiff nevertheless maintained the subsidiary as its representative entity within the Gulf Corporation Council Region. 15 The subsidiary is a small entity within the plaintiff's corporate group. For the financial year ended 30 June 2020, its revenue was the equivalent of $57,908, representing 0.057% of the plaintiff's group revenue of $100.7 million for the same year. The subsidiary has only three employees and does not currently have any ongoing regular contracted business, although it occasionally sells a small amount of photo enforcement equipment spare parts. The subsidiary is not a material part of the plaintiff's group, nor is it a material part of its future global strategy for business growth. Before the scheme was proposed, the plaintiff was considering whether to continue to maintain the subsidiary or to wind it up. 16 On 7 May 2021, a draft announcement to the ASX was prepared. At 2.04 pm, the announcement was released. Apart from other matters, the announcement informed the market that GAC approval would not be received in time for the second court hearing, and may not be obtained until the end of May 2021, or possibly later. However, the announcement also informed the market that the plaintiff's board was not currently aware of any reason why GAC approval would not be obtained and that if the scheme were to be passed by the requisite majorities at the convened meeting, with all other relevant conditions precedent satisfied or waived, the plaintiff intended to seek orders from the Court that the scheme be varied in the manner I have noted. The benefit of this was that, if approval were to be given, the terms of the scheme would be "locked in" but remains subject to GAC approval being obtained within a defined period, without the need for further shareholder or court approval. 17 The meeting proceeded as convened. However, the chairman of the meeting, Mr Winters, read a prepared script which included reference to the status of the conditions precedent and the fact that GAC approval would not be forthcoming before the second court hearing. Mr Winters' script repeated the information previously given by the announcement made on the afternoon of 7 May 2021. There can be no doubt, therefore, that those actually attending the meeting were aware of the course that the plaintiff intended to adopt in this regard if the scheme were to be approved by the shareholders. 18 The evidence includes correspondence after the scheme meeting between the plaintiff and some of its major shareholders, representing, in total, 63.85% of the plaintiff's issued shares. The correspondence is illuminating because it refers to the success of the meeting in approving the scheme. In that correspondence, no concern whatsoever is expressed by the shareholders that the plaintiff would be asking the Court to amend the scheme so that GAC approval would be a condition subsequent rather than a condition precedent. 19 The plaintiff has corresponded with ASIC on this matter. It is not necessary for me to descend to the detail of this correspondence, which is in evidence. It is sufficient that I draw attention to a letter from ASIC dated 14 May 2021, in which ASIC reached the following conclusion: The outline of submissions and affidavit material provided by Redflex to ASIC on 13 May 2021 establish that: • the resolution to approve the Scheme likely would have been approved in the absence of the proposed variation to the Scheme terms; • the votes cast by Redflex members at the Scheme meeting, after being informed of the proposed variation, were in favour of the Scheme with 99.8% by shares and 93.8% by number of shareholders in favour; • a number of major shareholders were aware of the proposed variation and continued to support the Scheme; • adjournment of the Scheme meeting (and presumably the Second Court Hearing) would expose the transaction to risk of non-completion. After taking into account our policy in RG 60, the matters described above, and the fact that to ASIC's knowledge no Redflex member has objected or intends to object, ASIC confirms that it does not object to the Scheme. 20 Further, ASIC accepts that it is open to the Court to exercise its discretion under s 411(6) of the Act to approve the present scheme with an amendment making GAC approval a condition subsequent. 21 I have been provided with detailed written submissions addressing all the factors involved in considering approval of the present scheme. These submissions were supplemented by oral submissions. 22 As to be expected, the written and oral submissions drew attention to the principles to be applied when considering schemes involving a condition subsequent. My attention was drawn to Re NRMA Ltd [2000] NSWSC 82; 156 FLR 349; J.P. Morgan Operations Australia Limited v J.P. Morgan Australia Group Pty Limited, in the matter of J.P. Morgan Operations Australia Limited (No 2) [2018] FCA 1180; Tiger Resources Limited, in the matter of Tiger Resources Limited (No 2) [2020] FCA 266, and my own decisions in Alchemia Limited, in the matter of Alchemia Limited [2012] FCA 927; Alchemia Limited, in the matter of Alchemia Limited (No 2) [2012] FCA 1136 (Alchemia (No 2)); and iProperty Group Ltd, in the matter of iProperty Group Ltd [2015] FCA 1507. 23 The plaintiff's submissions also address the broad discretion under s 411(6) of the Act to grant approval to the scheme subject to such alterations or conditions as the Court thinks just. 24 The amendments that are proposed include the insertion of clause 3.3 into the scheme which provides for GAC approval as a condition subsequent to the scheme to be satisfied by no later than the End Date, which is specified as 13 August 2021. The clause prescribes how this condition subsequent is to be satisfied. It provides that if the condition subsequent is not satisfied on or before the End Date, then the scheme will lapse and be of no further force or effect. The amendments retain the Effective Date, which is conditioned on s 411(10) of the Act, but provide for a different Record Date, which is now conditioned on the condition subsequent being satisfied. The Implementation Date (being the date on which the scheme is implemented) is correspondingly affected, so as not to occur until after the condition subsequent is satisfied. A similar mechanism was adopted in Alchemia (No 2). 25 I am satisfied that the Court has the power to approve the scheme with the amendments that are sought, and that it should do so for the reasons the plaintiff has advanced in submissions. 26 The risk that the scheme will lapse if GAC approval is not obtained has always been a present risk which has been brought to the attention of the shareholders in the scheme booklet as originally dispatched. I accept that, on balance, it was in the interests of shareholders for the scheme to be put to them at the meeting as originally convened, notwithstanding the emergence of the new information about GAC approval on and after 4 May 2021. The benefit of doing so was to "lock in" the transaction which the shareholders overwhelmingly approved and which, according to the expressed voting intentions, had the support of a number of substantial shareholders. 27 I accept that an adjournment of the meeting would have exposed the transaction to a risk of non-completion, although it is not possible to know, at the present time, what the magnitude of that risk might have been. 28 I take into account that the plaintiff's directors are not aware of any reason why GAC approval will not be obtained. The available evidence suggests that there has simply been a delay in the approval process, most likely due to the Eid Al Fitr holiday period and not due to any expression of hesitation about the application. 29 I also take into account that the plaintiff's major shareholders, whose votes can be taken to have been in support of the scheme, cast their votes knowing of the plaintiff's intention of seeking an amendment to the scheme to render GAC approval a condition subsequent. 30 Further, I take into account that no person has come forward to oppose the scheme either generally or with the amendments the plaintiff seeks. 31 I note that all other conditions precedent to the scheme (other than relating to court approval) have been satisfied. 32 In the circumstances, I am satisfied that the scheme, with the amendments proposed, should be approved by the Court. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates.