Medical Australia Ltd, in the matter of Medical Australia Ltd [2017] FCA 1304 - FCA 2017 case summary — Zoe

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Medical Australia Ltd, in the matter of Medical Australia Ltd [2017] FCA 1304

[2017] FCA 1304

Federal Court of Australia|2017-10-04|Before: Mr J, Markovic J

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

2017-10-04

Before

Mr J, Markovic J

Catchwords

CORPORATIONS - schemes of arrangement - application for order that company convene meeting of members - application allowed

Source

Original judgment source is linked above.

Catchwords

CORPORATIONS - schemes of arrangement - application for order that company convene meeting of members - application allowed

Judgment (14 paragraphs)

[1]

Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act): (a) the plaintiff (MLA) convene a meeting (Scheme Meeting) of the holders of ordinary shares in the plaintiff (Scheme Shareholders), for the purpose of considering and if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement (Scheme) between the plaintiff and the Scheme Shareholders, the terms of which scheme of arrangement are set out in Annexure C of the document which has been tendered and marked Exhibit IBM-2 (Scheme Booklet); (b) the Scheme Meeting be held on Wednesday 15 November 2017 at the offices of Nexia Australia, Level 16, 1 Market Street, Sydney in the State of New South Wales commencing at 10.00 am; (c) the chairperson of the Scheme Meeting be Bruce Hancox, or failing him, Ian Burnham Mitchell; (d) the chairperson appointed to the Scheme Meeting has the power to adjourn or postpone the Scheme Meeting in his absolute discretion for such time and to such date as he considers appropriate; (e) at the Scheme Meeting, the resolution to approve the Scheme be decided by way of a poll; (f) the explanatory statement substantially in the form of the Scheme Booklet be approved for distribution to Scheme Shareholders.
Pursuant to s 1319 of the Act, there be dispatched to each Scheme Shareholder: (a) by hand at, or by ordinary pre-paid post or courier to, the address of that Scheme Shareholder set out in the register of members of MLA; or (b) in the case of a Scheme Shareholder whose registered address is outside Australia, by airmail or facsimile to the address of that Scheme Shareholder as set out in the register of members of MLA, a copy of the Scheme Booklet, a proxy form and a reply envelope addressed to Medical Australia Limited c/- NextRegistries Limited, PO Box H195 Australia Square, Sydney NSW 1215.

[8]

legal framework 16 The Court will order the convening of a scheme meeting and approve the scheme booklet pursuant to s 411 of the Corporations Act if it is satisfied of the following matters: (1) the plaintiff is a Pt 5.1 body; (2) the proposed scheme is an "arrangement" within the meaning of s 411 of the Corporations Act; (3) the scheme booklet will provide proper disclosure to members; (4) the scheme is bona fide and properly proposed; (5) ASIC has had a reasonable opportunity to examine the proposed scheme and explanatory statement, to make submissions and has had 14 days' notice of the first court hearing; and (6) any other procedural requirements have been met, such as r 3.2 of the Rules as to the nomination of a chairperson for the scheme meeting, see Staging Connections Group Limited, in the matter of Staging Connections Group Limited [2015] FCA 1012 (Staging Connections) at [19] (per Gleeson J). 17 In Staging Connections Gleeson J said at [21]: The approach of the Court at the first court hearing is 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 receives the statutory majority at the...meeting the court would be likely to approve it on the hearing of a petition which is unopposed": per Street CJ (with whom Hutley and Samuels JJA agreed) in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72. The High Court approved this observation in Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. The FT Eastment approach has been consistently followed. 18 Because the application was made ex parte, there was a duty of disclosure that fell upon the plaintiff. It was required to bring to the Court's attention all matters that could be considered relevant to the exercise of the discretion to convene the scheme meeting: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [7] (per Barrett J).

[11]

Performance risk 24 The Scheme is subject to the conditions precedent set out in cl 3.1 of the Scheme. As set out at [10] above, the Scheme is, in effect, self-executing. As described at [9] above and as required by cll 4.2 and 4.5 of the Scheme, the obligation to transfer the scheme shares is subject to the provision of the scheme consideration, which is a cash payment of $0.086 per Medical Australia share held on the scheme implementation date. 25 Medical Australia submitted, and I accepted, that the procedure required by the Scheme, ensures that the Scheme consideration is provided prior to the transfer of any shares and mitigates any performance risk. 26 Medical Australia also noted that ICU and ICU BV, both of which have executed the deed poll, are foreign entities. Where that is the case, the Court has indicated that the company should provide evidence that the deed poll has been duly executed and is enforceable: Simavita at [43]-[44]. In Veda Group Limited, in the matter of Veda Group Limited [2015] FCA 1506 Yates J observed at [30]-[33] that, where the parties have agreed to submit to the exclusive jurisdiction of an Australian court and have agreed that domestic law will apply as the proper law of the contract in proceedings arising out of, or in connection with, the deed poll, it is not necessary to provide an opinion on the question of whether proceedings arising out of, or in connection with, the deed poll can be brought in another forum. 27 Here, the deed poll is governed by the laws of New South Wales. ICU and ICU BV have submitted to the non-exclusive jurisdiction of the courts exercising jurisdiction in New South Wales and courts of appeal from them in relation to any proceeding arising out of, or in connection with, the Scheme and have waived any right to object to the venue of any legal process in these courts based on absence of jurisdiction or inconvenient forum. In those circumstances, Medical Australia submitted that it will provide evidence from a lawyer in the jurisdiction of incorporation of each of ICU and ICU BV opining on the due execution of the deed poll at the second court hearing: see Ecosave Holdings Limited, in the matter of Ecosave Holdings Limited [2015] FCA 1121 at [16] (per Yates J).

[13]

Deal protection clauses 29 Clause 13.3 of the Implementation Agreement requires Medical Australia to pay a break fee of $135,000 if the Scheme does not proceed in the circumstances contemplated by that clause. In addition, cl 12 of the Implementation Agreement includes "no-shop", "no-talk", "no due diligence", "notification" and "matching rights" obligations. These provisions are all disclosed in the scheme booklet in sections 8.8 and 8.9. 30 In APN News at [55] Lindgren J said in relation to no-shop and break-fee provisions that it would be desirable if applications under s 411(1) of the Corporations Act were supported by affidavit evidence directed to showing: • that the no-shop and break fee provisions are the result of a normal commercial negotiation, and explaining, at least briefly and in general terms, the factual basis for that statement (see [46] above); • that the directors of the target company, or at least those directors of it who are not affiliated with the offeror, believe that the provisions do not operate against the interests of offeree shareholders, and that in fact it was in the interests of such shareholders that the directors agreed to the inclusion of the provisions in the merger implementation agreement (see [46] above and Re Paramount Communications Inc Shareholders' Litigation 637 A2d 34 (Del Supr 1993) for a case in which a target company's directors' commitment to no-shop and break-fee provisions was held, in all the circumstances, to constitute a breach of their fiduciary duty); and • in the case of the break fee, explaining, by reference to calculations based on the evidence before the Court, the percentage that the break fee represents (a) of the "equity value" of the target company, calculated in accordance with para 7.18 of the Takeovers Panel's guidance note 7, and (b) of the scheme consideration (the explanation might, instead, be conveyed in a submission, but still by reference to the evidence before the court). 31 In that regard, Medical Australia referred to the evidence of Mr Mitchell in which he explains that the break fee is a genuine pre-estimate of ICU's costs and that the sum was the subject of negotiation between the directors of Medical Australia and ICU and was agreed accordingly. 32 Medical Australia acknowledged that the break fee represents 1.1% of the equity value of Medical Australia based on the scheme consideration of $11,761,878.66, which is higher than the 1% referred to in Guidance Note 7: Lock-up devices issued by the Takeover Panel. It submitted that the break fee was not unacceptable because it is neither anti-competitive nor coercive because: (1) it is not payable if the Scheme does not proceed because Medical Australia shareholders do not approve it by the requisite majorities at the scheme meeting; and (2) although the break fee is payable by Medical Australia in respect of a competing proposal, in those circumstances Medical Australia's obligation to pay the break fee would be funded by the proponent of the superior proposal. 33 I accepted that the break fee was not excessive in those circumstances.

Medical Australia Ltd, in the matter of Medical Australia Ltd [2017] FCA 1304

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Catchwords

Judgment (14 paragraphs)

Legislation Cited (2)

Cases Cited (8)