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[2010] FCA 1309
plaintiff. The application was granted, with orders convening the shareholders’ meeting and approving the explanatory statement; the scheme was subsequently approved, ABB Grain was exempted from s 411(11),...
The supplied judgment is ABB Grain Ltd, In the Matter of ABB Grain Ltd [2010] FCA 1309, not a judgment titled Mincom Ltd v EAM Software Finance Pty Ltd. Mincom appears in the reasons as a prior decision whose criticism of a deemed warranty Besanko J respectfully disagreed with, adopting instead the approach in Re APN News & Media. The Court first allowed ABB Grain to put its proposed acquisition scheme to shareholders and approved the explanatory statement. After shareholders approved the scheme, the Court considered the process, the terms, the revised earnings information and a one-day mailing delay. It then approved the scheme.
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There is an important citation and title mismatch in the material supplied. The heading asks for “Mincom Ltd v EAM Software Finance Pty Ltd”, but the judgment text is ABB Grain Ltd, In the Matter of ABB Grain Ltd [2010] FCA 1309, decided by Besanko J. Mincom is discussed in the reasons as an earlier decision about a deemed warranty, not as the proceeding being decided. This analysis therefore concerns the ABB Grain judgment and does not attribute its reasons or orders to Mincom.
ABB Grain was a South Australian public company listed on the ASX. It sought approval for a scheme under which Viterra Australia Pty Ltd, a wholly owned subsidiary of Canadian company Viterra Inc, would acquire all ABB Grain ordinary shares. The proposed scheme offered shareholders a choice of cash, Viterra shares, Viterra CHESS Depository Interests (CDIs), or the specified standard mixture of cash and script. The maximum amounts of cash and script were capped, with pro rata scaling applying if shareholder elections exceeded the relevant cap (paras 6-12).
The Court dealt with the usual two stages of a scheme proceeding. At the first hearing, on 30 July 2009, it ordered a meeting of ABB Grain shareholders under s 411(1) and approved the explanatory statement and related materials. At the second hearing, on 10 September 2009, it approved the scheme under s 411(4)(b), after the required shareholder vote and consideration of the remaining statutory and procedural matters (paras 1, 66-68, 87).
The scheme included protections for the delivery of consideration. Cash was to be placed in an Australian trust account, and the necessary Viterra shares and CDIs were to be issued and recorded before ABB Grain shares were transferred. Viterra and Viterra Australia also gave obligations under a deed poll (paras 13, 28-33). Separately, ABB Grain was to pay a fully franked dividend of $0.41 per share if the scheme proceeded (paras 14, 31-32).
Shareholders approved the scheme. The Court recorded that 60.45 per cent of scheme shareholders, representing 83.57 per cent of ABB Grain’s share capital, voted in favour (para 81). Between the first and second hearings, ABB Grain revised its 2009 earnings guidance downwards. The independent expert considered the revision and maintained its view that the scheme was fair and reasonable and in shareholders’ best interests in the absence of a superior proposal (paras 69-73, 82).
At the first hearing, the Court applied the approach described in the authorities: it examined whether the proposal was a scheme within s 411(1), whether shareholders would receive the material facts needed to decide how to vote, whether ASIC had a reasonable opportunity to examine the proposal, and whether there was any apparent reason the scheme would not later be approved if the required majority voted for it (para 21). Besanko J emphasised that the Court would not substitute its commercial judgment for the judgment of the relevant class of members (para 22).
The formal requirements were met. ABB Grain was a Part 5.1 body, the proposed acquisition arrangement fell within s 411(1), and ASIC was served with the originating process and draft scheme booklet more than 14 days before the hearing. The Court was satisfied that ASIC had a reasonable opportunity to review the material (paras 16-20, 25). It also accepted that the scheme booklet disclosed the matters required by ss 411 and 412, reg 5.1.01 and Sch 8 Pt 3 of the Corporations Regulations (para 24).
The Court found the scheme had features supporting its prospects of later approval: the directors unanimously recommended it, an independent expert considered it fair and reasonable and in shareholders’ best interests, and the consideration was described as representing a premium against relevant pre-announcement market prices (para 23). That was not a final determination of the scheme’s fairness at the first hearing. It supported the view that a meeting should be convened, with shareholders making the commercial decision.
Besanko J separately considered provisions that might affect shareholders’ interests or the voting process. On credit and performance risk, the relevant consideration was that shareholders should not transfer their shares and then face delay in receiving consideration with only a deed poll claim as a remedy (para 27). Here, the scheme required cash to be held on trust and script consideration to be issued and registered before ABB Grain shares transferred. The Court considered those arrangements adequate protection (paras 28-33).
The deemed warranty required a shareholder to warrant that their shares would be fully paid and free of encumbrances and that they had capacity to transfer them. Besanko J referred to the reasoning in Re APN News & Media, which treated such a clause as directed to preventing a participant whose shares were encumbered from being unfairly advantaged. The judgment records that Lindgren J in that case rejected the criticism of a similar clause made in Mincom. Besanko J accepted that approach, noted that the clause was brought to shareholders’ attention, and concluded that it was not a reason to refuse the meeting order (paras 34-39). The Court did not purport to decide Mincom itself.
The no-shop, no-talk and matching provisions were also considered. The Court found the exclusivity period capable of precise ascertainment and reasonable in the circumstances. It accepted the fiduciary carve-out for responding to an unsolicited competing proposal and considered that the no-shop obligation did not itself require an equivalent carve-out, referring to Takeovers Panel Guidance Note 7 as quoted in the reasons (paras 40-48). The $16 million break fee was approximately 1 per cent of ABB Grain’s equity value, was disclosed, and was not payable simply because shareholders rejected the scheme. The Court was not satisfied it could influence the vote or that unusual circumstances justified refusing the first-stage orders (paras 49-58).
At the second hearing, the Court used the considerations it set out at para 75: procedural compliance, the statutory majority, fairness and reasonableness, and other statutory requirements. It addressed the one-day delay in posting some scheme packs. It found the delay did not reduce the required 28-day notice period and there was no suggestion of substantial injustice. It varied the earlier order nunc pro tunc, substituting 4 August for 3 August 2009 (paras 76-80). The Court also considered the vote, the independent expert’s continuing opinion, the conditions precedent and ASIC’s no-objection statement (paras 81-85). On that material it approved the scheme.
This judgment is an application of the statutory scheme process, not a judgment announcing a new general test. It sets out a structured approach for the two hearings by relying on prior authorities. At the first stage, the focus was whether a meeting should be convened and whether the explanatory statement and proposed process were suitable. At the second stage, the Court considered the meeting result, fairness and reasonableness, procedural compliance and the remaining statutory requirements (paras 21-25, 75).
The reasons also illustrate how the Court treated particular transaction terms in this scheme. The staged delivery protections were sufficient, in the Court’s assessment, to address credit or performance risk (para 33). The deemed warranty was assessed in light of its function, potential effect and disclosure to shareholders (paras 34-39). Exclusivity provisions and a break fee were considered in context, including their duration, carve-outs, disclosure and possible effect on competition or voting (paras 40-58).
The supplied reasons do not establish what the state of the law was before this judgment in any comprehensive sense, nor do they report how later courts treated ABB Grain. They do show Besanko J following the approach in Re APN News & Media on deemed warranties and referring to earlier authorities on scheme procedure and approval. The judgment’s cases-cited list labels Re APN News & Media as followed and Mincom as disapproved. In the reasons, the disapproval is specifically an account of Lindgren J’s disagreement with Fryberg J’s criticism of the deemed warranty, which Besanko J accepted (paras 35-37). It should not be overstated as a general overruling of Mincom.
The decision’s procedural treatment of the dispatch error is also fact-specific. The Court relied on the one-day length of the delay, the continued 28-day notice period and the absence of any suggestion of substantial injustice (para 80). The reasons do not establish that every breach of a court order or mailing deadline can be corrected in the same way.
At para 22, Besanko J says the Court “will not substitute its commercial judgment” for that of the members. In plain English, the Court’s role at the meeting-convening stage was not to decide whether the acquisition was the best commercial choice for ABB Grain shareholders. It was to examine statutory and procedural matters and whether the proposal was fit to be put to members.
At para 24, the Court says the scheme booklet disclosed the material required by the Corporations Act and Regulations. This explains why the Court considered the explanatory statement suitable for the shareholder decision process. The finding is tied to the documents in this case, including the disclosure schedule presented by ABB Grain.
At para 33, the Court concludes that shareholders were “adequately protected” against credit or performance risk. In context, the point was that consideration had to be provided or arranged before the shares transferred, rather than leaving shareholders first to transfer their shares and then wait for payment or securities.
At para 39, the Court concludes that the deemed warranty was not a reason to refuse an s 411(1) order. The reasons show why: the clause had a stated purpose, the Court adopted the approach in Re APN News & Media, and the scheme booklet drew attention to it. This is a case-specific assessment, not a statement that every deemed warranty is acceptable regardless of drafting or disclosure.
At para 80, the Court notes there was no suggestion the one-day delay caused or might cause substantial injustice. The Court’s conclusion depended on the short delay and the fact that shareholders still had at least the statutory notice period. The Court then varied the earlier order nunc pro tunc at para 79.
At para 87, the Court states that it was appropriate to approve the scheme. That conclusion followed the Court’s findings about the vote, the independent expert, conditions precedent, procedure and statutory requirements, rather than any single factor in isolation.
The decision is most directly relevant to a court-supervised acquisition scheme where a company seeks an order convening a shareholder meeting under s 411(1), followed by approval under s 411(4). It is useful as a procedural example where the proposed transaction includes cash and securities consideration, consideration caps, scaling, deed-poll obligations, and steps designed to ensure consideration is provided before shares transfer (paras 6-13, 27-33).
It may also be relevant where scheme documents contain a deemed warranty about title or encumbrances. The reasons indicate that a court may examine the clause’s purpose and practical effect, whether the provision is adequately disclosed, and whether it unfairly places shareholders in breach for matters they may not have appreciated (paras 34-39). The judgment’s treatment depends on the terms and disclosure in ABB Grain’s scheme booklet.
The discussion of no-shop and no-talk provisions may be relevant where an implementation agreement includes exclusivity, fiduciary carve-outs or a matching right. The Court considered the length and ascertainability of the exclusivity period, the ability to respond to a superior proposal, and prominence of disclosure (paras 40-48). The break-fee discussion may be relevant where a fee is around 1 per cent of equity value, is not triggered merely by a negative shareholder vote, and has been disclosed and supported by evidence of commercial negotiation (paras 49-58).
Finally, the decision may be relevant to a procedural irregularity involving a short delay in sending scheme materials. Its treatment is tied to the finding that the delay was one day, the statutory notice period remained satisfied, and no substantial injustice was suggested (paras 77-80). The judgment does not establish a general rule that any missed deadline is harmless.
The supplied judgment gives no account of later judicial treatment of ABB Grain Ltd, In the Matter of ABB Grain Ltd [2010] FCA 1309. It would therefore be unsupported to say, on this material alone, that later courts followed, distinguished or limited this decision.
What the judgment itself says about earlier authorities is more specific. Besanko J records that Re APN News & Media had followed a particular approach to deemed warranties and that this approach had also been followed in cases including Re Adelaide Bank and Re St George Bank (paras 35-38). Besanko J adopted that approach for the ABB Grain clause. The judgment also cites authorities for the general framework governing the first and second scheme hearings (paras 21, 75).
The supplied case list labels a number of cases as “cited” and Re APN News & Media as “followed”. Those are the relationships stated in the supplied materials. The separate entry that labels Mincom “disapproved” should be read with the reasons: Besanko J recounts Lindgren J’s express disagreement with Fryberg J’s criticism of a similar deemed warranty and then accepts that approach (paras 35-37). The reasons do not say that the ABB Grain judgment formally overruled Mincom.
The reasons resolve whether the ABB Grain scheme should proceed on the record before Besanko J. They do not determine whether differently drafted deemed warranties would be acceptable, or how the analysis would change where a clause is less clearly disclosed or imposes a broader liability on shareholders. The judgment notes that a different drafting approach could avoid the language of warranty, but this observation appears in the discussion of Lindgren J’s reasoning in Re APN News & Media, not as a detailed ruling on alternative drafting (para 36).
The decision also does not set a universal permissible duration for exclusivity periods or a universal threshold for break fees. The Court found the periods and fee before it acceptable in the context of the transaction, the carve-outs, disclosure and evidence (paras 40-58). The reasons do not determine how those features should be assessed in a materially different transaction.
Nor does the judgment explain in detail the scope of the Court’s discretion under s 411(12) in other circumstances. It records that an exemption from s 411(11) was appropriate here because the scheme involved an acquisition of shares and did not, for example, involve a variation of rights (para 84). The reasoning is brief and tied to the scheme’s nature.
Finally, the text provides no later history for this decision and no basis to assess its subsequent influence. Any account of later treatment would require legal sources beyond the supplied judgment.
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ABB Grain Ltd, In the Matter of ABB Grain Ltd ABB GRAIN LTD
JUDGE: BESANKO J DATE OF ORDER: 10 September 2009 WHERE MADE: ADELAIDE
THE COURT ORDERS THAT: 1 Pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between ABB Grain Ltd (ACN 084 962 130) (ABB Grain) and its fully paid ordinary shareholders, in the form annexed hereto*, be approved. 2 Pursuant to section 411(12) of the Act, ABB Grain be exempted from compliance with section 411(11) of the Act in respect of the scheme of arrangement referred to in order 1. 3 These Orders to be entered forthwith. 4 Order 4 of the orders made on 30 July 2009 be varied nunc pro tunc so that the date 4 August 2009 is substituted for 3 August 2009. THE COURT records, to facilitate the event occurring, that the plaintiff proposes to rely upon section 3(a)(10) of the Securities Act of 1933 (US) for exemption from the registration requirements of that Act.
IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 105 of 2009
ABB Grain Ltd, In the Matter of ABB Grain Ltd ABB GRAIN LTD
JUDGE: BESANKO J DATE: 26 NOVEMBER 2010 PLACE: ADELAIDE
application for order under s 411(1) of the corporations act 2001 (cth)
Introduction 1 ABB Grain Ltd ("ABB Grain") applied for an order under s 411(1) of the Corporations Act 2001 (Cth) ("the Act") that a meeting of its members be convened to consider a scheme of arrangement between the company and its members and, should such an order be made, for approval of an explanatory statement which was to accompany the notice of the meeting. I made such orders and these are my reasons for making the orders. 2 ABB Grain was a public company registered in South Australia and was a company limited by shares. It was admitted to the official list of the Australian Stock Exchange ("ASX") and its shares were officially quoted on the ASX. 3 A scheme of arrangement was proposed between ABB Grain and its members and that led to the application for an order under s 411(1) of the Act. 4 The Court may not make an order under s 411(1) unless 14 days notice of the hearing of the application (or such lesser period of service as the Court or the Australian Securities and Investments Commission ("ASIC") permits) has been given to ASIC and the Court is satisfied that ASIC has had a reasonable opportunity to examine the terms of the proposed arrangement and the draft explanatory statement relating to it and to make submissions to the Court in relation to those matters (s 411(2)). 5 The draft explanatory statement referred to in s 411(2) means a statement that explains the effect of the proposed arrangement and any material interests of the directors of the company and any different effect on those interests. The draft explanatory statement must also set out the information prescribed by regulation 5.1.01 and Schedule 8 Part 3 of the Corporation Regulations 2001 and any other information which is material to the making of a decision by a member whether or not to agree to the proposed arrangement and which is within the knowledge of the directors and not previously disclosed to the members of the body (s 411(3)).
The proposed scheme 6 In this case the proposed scheme of arrangement was between ABB Grain and its ordinary shareholders on the register at a certain date. The scheme involved the proposed acquisition of all of the ordinary shares issued in ABB Grain by Viterra Australia Pty Ltd ("Viterra Australia"). Viterra Australia was a proprietary company registered under the law of Victoria. It was a wholly owned subsidiary of Viterra Inc ("Viterra") which was a company registered under Canadian law. If implemented the scheme would result in ABB Grain becoming a wholly owned subsidiary of Viterra Australia. 7 The proposed explanatory statement was part of a document called a scheme booklet which booklet consisted of two parts (Part A and Part B). Part B included five appendices. Appendix 1 was the Implementation Agreement between ABB Grain, Viterra and the company which became Viterra Australia. The Implementation Agreement was dated 19 May 2009. Appendix 2 was the Scheme of Arrangement involving ABB Grain and the registered holders of ABB Grain shares and it contained the terms and conditions of the proposed scheme of arrangement. Appendix 3 was a Deed Poll to be entered into by Viterra and Viterra Australia in favour of each holder of ABB Grain shares. The Deed Poll was executed three days before the first Court hearing. The shareholders are referred to as scheme shareholders. Appendix 4 was the Notice of the Scheme Meeting at which the scheme shareholders would be asked to consider and, if it were thought fit, to pass the following resolution. That pursuant to and in accordance with section 411 of the Corporations Act, the scheme of arrangement proposed to be entered into between ABB Grain and the ABB Grain Shareholders, as more particularly set out in the Scheme Booklet of which the notice of this meeting forms part, is agreed to (with or without modification as approved by the Court). 8 Appendix 5 was Notice of Constitutional Amendment Meeting. The purpose of the meeting which was the subject of that notice was to consider and, if it were thought fit, agree to amend the constitution of ABB Grain to remove the 15 per cent limit on the amount of issued share capital in ABB Grain that any one ABB Grain shareholder (together with their associates) could hold. That constitutional amendment was necessary if the scheme was to become effective. The constitutional amendment was to take effect if the scheme became effective and proceeded. 9 Under the scheme it was proposed that a shareholder of ABB Grain would receive, at their election, a cash payment of $8.70 per ABB Grain share ("maximum cash consideration") or 0.9062 common shares in the share capital of Viterra per ABB Grain share or 0.9062 CHESS Depository Interests ("CDIs") in respect of Viterra shares ("maximum script consideration") or a consideration of a cash payment of $4.35, and 0.4531 Viterra shares or 0.4531 Viterra CDIs per ABB Grain share ("standard consideration"). The ABB Grain shares were to be transferred to Viterra Australia. The Viterra shares were to be listed on the Toronto Stock Exchange and the Viterra CDIs were to be listed on the ASX. 10 The Implementation Agreement made special provision for persons identified as an "Ineligible Foreign ABB Grain Shareholder", being an ABB Grain Shareholder whose address as shown in the Register was a place outside Australia and its external territories, New Zealand and the United States of America (clause 1). Subject to a discretion in clause 3.4 of the Implementation Agreement, those persons were to have any Viterra script they would otherwise have received aggregated and sold on their behalf, using a Cash Out Facility established under clause 5.7 of the Scheme of Arrangement. (See Re Hills Motorway Ltd (2002) 43 ACSR 101 at 103-104 [9] per Barrett J.) 11 The total cash consideration and the total script consideration were limited under clause 5 of the Scheme of Arrangement. The total cash consideration was capped at $1.13 billion approximately. The standard consideration was to be paid first. If the available cash consideration after that payment was not sufficient to satisfy the shareholders who had elected to receive maximum cash consideration then those shareholders would be scaled back on a pro rata basis. The balance of that consideration would be in script or cash from the Cash Out Facility if they elected to use it (clauses 5.3 and 5.7). 12 The total script consideration was capped at approximately 78.3 million shares. The standard consideration was to be paid first. If the available script consideration was not sufficient to satisfy the shareholders who had elected to receive maximum script consideration then these shareholders would be scaled back on a pro rata basis. The balance of their consideration would consist of cash consideration. 13 The scheme included the Deed Poll whereby the obligations of Viterra and Viterra Australia were to be secured. Under the scheme no ABB Grain shares were to be transferred to Viterra Australia pursuant to the scheme until Viterra Australia had transferred the aggregate amount of the cash component of the scheme consideration into an Australian denominated trust account with an Australian bank operated by ABB Grain as trustee for the scheme shareholders and, in relation to script consideration, Viterra shares and Viterra CDIs had been issued to relevant scheme shareholders and the nominee and the relevant registers had been updated to record their issuance. 14 If the scheme were implemented, ABB Grain would pay a fully franked cash dividend of $0.41 per ABB Grain share payable to all scheme shareholders on the dividend record date regardless of which form of scheme consideration they elected to receive. 15 It was proposed that the meeting to consider the constitutional amendment, which would be an extraordinary general meeting, would take place immediately after the scheme meeting and that ABB Grain shareholders recorded on the ABB Grain share register on the Record Date as defined would be entitled to vote at the meeting. As I have said, the amendment to the constitution was to be conditional upon the scheme becoming effective. In the event the constitutional amendment was approved by the requisite majority but the scheme did not become effective, the ABB constitution would not change.
The issues under s 411(1) of the Act 16 The formal requirements in s 411(1) were established in this case. ABB Grain was a Part 5.1 body as defined in s 9 of the Act. 17 A scheme of arrangement designed to effect the acquisition of shares of one company by another is a "compromise or arrangement within the meaning of s 411(1) of the Act: Re Bank of Adelaide (1979) 22 SASR 481; Re Adelaide Bank Limited [2007] FCA 1582 ("Re Adelaide Bank Limited") at [14]. 18 ABB Grain applied, by way of Originating Process, for an order under s 411(1) of the Act. 19 The Originating Process and a copy of the draft scheme booklet (including attachments and annexures) were served on ASIC more than 14 days before the first hearing date and I was satisfied that ASIC had a reasonable opportunity to examine those documents and to make submissions to the Court in relation to the proposed scheme of arrangement and draft scheme booklet. 20 The discretion of the Court to make an order under s 411(1) was enlivened. 21 On the issue of the approach the Court should take to the exercise of the discretion, ABB Grain referred me to the following passage in the reasons for judgment of Barrett J in Re Westfield Holdings (2004) 49 ASCR 734 at 736 [4]: The court's role on a s 411 application of this kind has been described in a number of cases. According to the formulation adopted by Santow J in Re NRMA Insurance Ltd (2000) 156 FLR 349; 33 ACSR 523, the court must see, on the material placed before it, that the proposal fits within the statutory concept of arrangement or compromise, that there will be available to members all the main facts relevant to the exercise of their judgment, that ASIC has had a reasonable opportunity to examine the proposal and that the scheme is so conceived and presented as to that structure, purpose and effect that there is no apparent reason, so far as can be foreseen, why it should not, in due course, receive the court's approval if the necessary majority of members' votes is achieved. To substantially similar effect are observations of Austin J in Re GIO Building Society Ltd and ASIC (2001) 39 ACSR 77, French J in Re Foundation Healthcare Ltd (2002) 42 ACSR 252 and Parker J in Re Ranger Minerals Ltd (2002) 42 ACSR 582. Slightly different, but by no means conflicting are the criteria enunciated by Emmett J in Re Central Pacific Minerals NL [2002] FCA 239; BC200200768 and repeated in the following terms by Conti J in Re CSR Ltd (2003) 45 ACSR 34 at 37: (i) the likelihood or otherwise that the court will approve the scheme of arrangement, if the statutory majority of shareholders is achieved at the proposed scheme meeting; (ii) whether there has been compliance with such preliminary matters as are relevant to the holding of the meeting; (iii) where there will be sufficient disclosure, to those persons and entities who will be affected by the scheme of arrangement, of its detail and effects; and (iv) whether there has been reasonable opportunity for the commission to examine the terms of the scheme of arrangement. 22 The authorities make it clear that while the Court will consider these matters carefully, it will not substitute its commercial judgment for that of the class of member to which the scheme of arrangement is directed: see, for example, Re ACM Gold Ltd (1992) 7 ACSR 231 at 235-236; Re Adelaide Bank Limited at [24]. 23 I was satisfied that the scheme of arrangement was likely to be approved by the Court if the statutory majority of members as defined in s 411(4)(a)(ii) approved the scheme of arrangement. First, the directors of ABB Grain unanimously recommended to members that they approve the scheme. Secondly, an independent expert (KPMG Corporate Finance (Aust) Pty Ltd) had examined the proposed scheme and prepared a report. In the opinion of the independent expert, the offer to ABB shareholders was fair and reasonable and was in their best interests. As ABB Grain pointed out, the scheme consideration and the ABB Grain dividend for each ABB Grain share represented a premium of between 18 per cent and 82 per cent over the market price of ABB Grain shares based on the one-month weighted average prices of ABB Grain shares on and prior to 28 April 2009, being the period before the announcement of the proposed scheme. Thirdly, I was satisfied that ABB Grain members would receive sufficient information to assess the advantages and disadvantages of the proposed scheme. 24 I was satisfied that the scheme booklet disclosed the material which needed to be disclosed under the Corporations Act 2001 (Cth) ss 411 and 412, Corporations Regulations reg 5.1.01 and Schedule 8 Part 3. In its written submissions ABB Grain included a schedule in which it identified each matter which had to be disclosed and the place where each matter was disclosed in the scheme booklet. I considered the table and was satisfied that all appropriate disclosure requirements were met. 25 I was satisfied, having regard to the affidavits (including exhibits) of Mr John Keeves sworn on 27 July and 29 July 2010 respectively that ASIC had a reasonable opportunity to examine the terms of the proposed arrangement and the scheme booklet and to make submissions to the Court in relation to those matters. As it happened, ASIC did not appear either at the first Court hearing or the second Court hearing. 26 A number of particular matters have been considered by the Courts in previous cases. Those matters have included the approach which should be taken to the credit or performance risk under the scheme, to deemed warranties, to no shop and no talk provisions and to break fees. I considered those matters in this case.
The credit or performance risk 27 In previous cases the Courts have considered whether the shareholders may be left in a position where they have transferred their shares, but there is a delay in providing the scheme consideration and their only remedy is to sue on a Deed Poll. 28 Under the scheme, Viterra Australia will only receive the ABB Grain shares once: 1. Viterra Australia had paid the aggregate amount of the cash component of the scheme consideration to ABB Grain, to be held on trust for scheme shareholders (Scheme of Arrangement clauses 4.2(a) and (b)(ii)(A) and 5.8(a)(i)); and 2. Viterra, in relation to the scheme consideration comprised of Viterra shares, has procured that the name and address of each scheme shareholder entitled to receive Viterra shares is entered in the Register of Viterra shareholders (Scheme of Arrangement clause 4.2(a) and (b)(ii)(B), 5.8(b)(i)); and 3. Viterra, in relation to the scheme consideration comprised of Viterra CDIs, has (1) issued to CHESS Depository Nominees Pty Limited ("CDN") to be held on trust, that number of Viterra shares that will enable CDN to issue CDIs to each scheme shareholder electing to receive Viterra CDIs as scheme consideration; (2) procured that the name and address of CDN is entered in the Viterra Register; (3) procured that CDN issues to each relevant scheme shareholder the number of shares to which it is entitled; (4) procured that the name of each such scheme shareholder is entered in the records maintained by CDN as the holder of the CDIs issued to that scheme shareholder; (5) in relation to each relevant scheme shareholder who held ABB Grain shares on the CHESS sub-register, procured that the CDIs are held on the CHESS sub-register; and (6) in relation to each relevant scheme shareholder who held ABB Grain shares on the issuer sponsored subregister, procured that the CDIs are held on the issuer sponsored subregister. (Scheme of Arrangement clauses 4.2(a) and (b)(ii)(B) and 5.8(c).) 29 Under the Deed Poll, Viterra and Viterra Australia must provide the scheme consideration in accordance with the terms of the scheme (clause 4.1). 30 Under clause 4.2(c) of the Scheme of Arrangement, ABB Grain, Viterra and Viterra Australia are not required to procure the sending of cheques, share certificates, holding statements or allotment advices, and are not required to make any cash payments by electronic means in respect of the scheme consideration, prior to ABB Grain shares being transferred to Viterra Australia. The Scheme of Arrangement provides that all such steps must be taken within 10 business days after the Implementation Date. The requirements in relation to the Cash Out Facility are dealt with in clause 5.7 of the Scheme of Arrangement. 31 On 24 July 2009 the directors of ABB Grain resolved that, subject to the scheme proceeding, each ordinary shareholder of ABB Grain would be paid a fully franked special dividend of $0.41 per share. The resolution was amended by circular resolution in a way which is not presently material. 32 Clause 4.3 of the Scheme of Arrangement requires ABB Grain on or before the business day before the implementation date to deposit an amount equal to the total amount payable by ABB Grain in respect of the ABB Grain Special Dividend in cleared funds in an account in its name on trust for scheme shareholders. The Directors of ABB Grain determined that the payment of the ABB Grain Special Dividend was in the best interests of ABB Grain and ABB Grain shareholders and did not materially prejudice the company's ability to pay its creditors (Chapter 12 of Part B of the Scheme Booklet). 33 I was of the view that the above provisions meant scheme shareholders were adequately protected against any credit or performance risk (Re SFE Corp Ltd (2006) 59 ACSR 82; Re APN News and Media Ltd (2007) 62 ACSR 400 ("Re APN News and Media"); Re Investa Properties Ltd (2007) 25 ACLC 1186).
The deemed warranty 34 Clause 7.3 of the Scheme of Arrangement was in the following terms: Each Scheme Shareholder is deemed to have warranted to Viterra and Viterra Australia, and appointed and authorised ABB Grain as its attorney and agent to warrant to Viterra and Viterra Australia, that their Scheme Shares will, at the date of transfer of them to Viterra Australia, be fully paid and free from all mortgages, charges, liens, encumbrances and interests of third parties of any kind, including any restrictions on transfer, and that they have full power and capacity to sell and to transfer their Scheme Shares to Viterra Australia under the Scheme. ABB Grain undertakes that it will provide such warranty to Viterra and Viterra Australia as agent and attorney of each Scheme Shareholder. 35 This clause was in very similar, although not identical, terms to the deemed warranty considered by Lindgren J in Re APN News and Media at 412-413 [57]-[63]. His Honour described the purpose of the clause he was considering in the following way (at 412 [60]): What is important, in my view, is that the deemed warranty is no more than a device directed to ensuring that a scheme participant whose shares are subject to an encumbrance is not unfairly advantaged. The amount of the damages payable for breach of the warranty is the amount required to discharge the encumbrance. 36 Lindgren J rejected the criticism of such a clause by Fryberg J in Mincom Ltd v EAM Software Finance Pty Ltd (2007) 61 ACSR 266 ("Mincom"). His Honour said (at 413 [62]): In Mincom Ltd v EAM Software Finance Pty Ltd (2007) 61 ACSR 266, Fryberg J described (at [39]) a deemed warranty clause almost identical to the present one as: [39] … onerous, unreasonable and calculated to catapult unsuspecting shareholders who have not read the small print of the arrangement in the schedule to the explanatory statement into a state of breach of warranty. As will be clear from what I have said above, I respectfully disagree. At first blush the deemed warranty may appear to attract criticism along these lines, but I think the criticism disappears once it is appreciated that its purpose and effect are as I have described them. Perhaps a better way of framing the provision would have been to avoid the language of warranty, and, instead, to provide simply that if shares continue to be subject to encumbrances after transfer, the shareholder would, upon demand by INMAL, pay the amount required to discharge the encumbrance to the encumbrancee if the encumbrance remains outstanding, or to INMAL if INMAL had already discharged it. 37 The approach taken by Lindgren J in Re APN News and Media has been followed in subsequent cases. I refer by way of example to Re Adelaide Bank Limited at [33] and Re St George Bank Ltd [2009] 68 ACSR 480 at [11]. 38 It is important that the attention of shareholders be drawn to such a clause. I was satisfied that the scheme booklet did that (Part B, section 1.7, page 15). 39 The deemed warranty was not a reason to refuse to make an order under s 411(1) of the Act.
The no shop and no talk provisions 40 The Implementation Agreement, which, as I have said, was dated 19 May 2009, contained exclusivity provisions in clause 11.7. The exclusivity period was from 19 May 2009 to the earlier of one of: the termination of the agreement in accordance with its terms; the implementation date; one of 30 November 2009 or (in certain circumstances) 30 December 2009; or such later date as ABB Grain and Viterra agreed in writing. 41 During the exclusivity period there was a no shop obligation (clause 11.1) and no talk obligation (clause 11.2) on ABB Grain in relation to any competing proposal. There was a fiduciary carve out in relation to the no talk obligation which was in the following terms: (a) Nothing in clauses 2, 4, 7 or 11.2 prevents any action by or on behalf of ABB Grain to respond to any bona fide approach by a third party in respect of a Competing Proposal not solicited in breach of clause 11.1 if, after consultation with ABB Grain's financial advisers and receiving written legal advice from external legal advisers, the Board of ABB Grain believes in good faith and acting reasonably that: (i) the Competing Proposal is or is capable of becoming a Superior Proposal; and (ii) failure to take such action would involve, or would be likely to involve, a breach of the duties of the directors of ABB Grain. 42 There was also a clause under which ABB Grain was required to give Viterra an opportunity to match or surpass any superior proposal (as defined in clause 1) received from a third party (clause 11.5). 43 At the time of the first Court hearing, the exclusivity period could have been as short as 19 May 2009 to 11 September 2009 (that is, the date planned for the approval of the scheme by the Court) namely, a period of a little under four months or, assuming the parties did not agree to a later date, as long as 19 May 2009 to 31 December 2009, namely, a little over seven months. 44 In Re Arthur Yates & Co Ltd (2001) 36 ACSR 758, Santow J considered whether the Court should approve a scheme of arrangement which included no-shop provisions. His Honour considered that such provisions should satisfy the following requirements: 1. The no-shop provision should be for no more than a reasonable period which was capable of precise ascertainment; 2. Whether the provision deals with actively soliciting an alternative proposal or simply dealing with an unsolicited proposal, in either case the provision should be framed so that it is subject to an overriding obligation not to breach the directors' fiduciary duties or be otherwise unlawful; and 3. There should be adequate prominence given to the provision in the explanatory memorandum set to shareholders. 45 The effect of clause 11 is that ABB Grain must not solicit a competing proposal or involve itself in discussions about a competing proposal save that it may respond to a competing proposal if, after taking advice from its financial advisers, it reasonably believes the competing proposal is or is capable of becoming a superior proposal and, after taking written legal advice from external legal advisers, it reasonably believes that the failure to respond would involve or would be likely to involve a breach of the duties of the directors of ABB Grain. 46 The exclusivity period was capable of precise ascertainment and was for a reasonable period. If the scheme was approved, the period would be a little under four months. That was not an unreasonable period. The period could be as long as a little over seven months but that was not an unreasonable period having regard to the nature of the transaction (see Re Dyno Nobel Ltd [2008] VSC 154 at [26]-[27]). Any proposal by the directors of ABB Grain for an agreement as to a later date would be subject to their statutory and fiduciary duties. 47 In my opinion, the fiduciary carve out was appropriate in the circumstances. It is true that the no-shop obligation was not subject to the fiduciary carve out. However, I did not think that that was inappropriate. The Takeovers Panel Guidance Note 7: Lock-up Devices provides at [7.37]: That Panel generally does not require that a no-shop agreement be constrained by a fiduciary exception, because it considers that a no-shop agreement is materially less anti-competitive than a no-talk agreement: a no-talk agreement may diminish competition in the market for target shares by preventing an interested party from bidding, whereas a no-shop agreement only prevents the target from soliciting additional bidders or alternative transactions. 48 In my opinion, the exclusivity clauses were given adequate prominence in the information provided to scheme shareholders. The substance of the clause was summarised under the heading "Possibility of a superior proposal" in Part A of the Scheme Booklet under the heading "Other relevant considerations" and was outlined in more detail in section 1.8 of Part B under the heading "Exclusivity Arrangements".
The break fee 49 Clause 13.2 of the Implementation Agreement required ABB Grain to pay a break fee of $16 million (exclusive of GST) in certain prescribed circumstances. 50 In APN News and Media, Lindgren J said (at 408-409 [43]): Provisions for the payment of break fees are not uncommon in agreements for schemes of arrangements and in merger and takeover agreements, both in Australia and overseas. Such provisions have not been an obstacle to the making of orders under s 411(1) of the Act for the convening of meetings. In Re SFE Corporation Ltd at [6]-[7], Gyles J said that he would be dissuaded from making an order by a break fee only if the amount was of such magnitude that it could influence voting or if there were some other unusual circumstances. 51 I did not consider that the break fee in this case was of such magnitude that it could influence voting or that there were other unusual circumstances. 52 In this case, the break fee was not payable simply because the shareholders of ABB Grain did not approve the scheme of arrangement and therefore it could not influence the voting at the meeting (Re Bolnisi Gold NL (No 2) (2007) 165 FCR 45 at 46 [2]; Re Adelaide Bank Limited at [31] per Lander J). 53 The break fee in this case was 1 per cent of the equity value of ABB Grain as at 27 July 2009. The basis of that calculation was as follows:
Section 411(17) of the Act 59 The Act provides that the Court is not to approve a compromise or an arrangement under s 411(4) unless it is either satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Act or there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement. The Court need not approve a compromise or arrangement merely because ASIC has produced such a statement (s 411(17)). 60 The practice of ASIC is not to produce a written statement under s 411(17)(b) (if it produces one at all) until the time of the second court hearing, that is, after the meeting has been held (Regulatory Guide 60 Schemes of Arrangement - s 411(17) para 21). 61 The weight of authority is that the matters raised by s 411(17) are considered at the second court hearing when it will be known whether ASIC will produce a statement to the effect that it has no objection to the compromise or arrangement (Re Macquarie Private Capital A Limited at [27] and [31]; Re Macquarie Capital Alliance Ltd (2008) 67 ACSR 484 at [49]; Re Adelaide Bank Limited at [24]; Re APN News and Media Limited at [65]. 62 Notwithstanding the views of ASIC, the Court may consider whether the scheme of arrangement has been proposed for the purpose of enabling avoidance of the operation of any of the provisions of Chapter 6 of the Act: Re Foundation Healthcare Ltd (No 2) (2002) 43 ACSR 680; [2002] FCA 973. 63 I record the fact that there was evidence put before me from Mr Ashley Roff to the effect that he was directly involved in the negotiations which led to the Implementation Agreement and it was never suggested to him during the negotiations that the transaction should be structured as a scheme of arrangement in order to avoid the operation of any provisions of Chapter 6 of the Act and, as far as he was aware, it was not proposed for that purpose.
Securities Act 1933 of the United States of America 64 The scheme booklet in Part B, Section 1.6(c) contained a section dealing with foreign ABB Grain shareholders and, in particular, shareholders in the United States. There was a statement in this section that ABB Grain and Viterra intended to rely on an exemption from the registration requirements of the US Securities Act of 1933 (US Securities Act) provided by section 3(a)(10) of the US Securities Act in connection with the issue of script consideration under the scheme. Registration for offers and sales of securities in "exchange transactions" under the US Securities Act is not required where one of the exemptions applies. Section 3(a)(10) contains an exemption in the following terms: (a) Exempted securities Except as hereinafter expressly provided, the provisions of this subchapter shall not apply to any of the following classes of securities: … (10) Except with respect to a security exchanged in a case under title 11, any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval; … 65 One of the conditions of the exemption is that the Court be informed, before any hearing at which the scheme is approved, that the issuer intends to rely on the Court's approval for the exemption in the event that the scheme is in fact approved.
Conclusion 66 It was for these reasons that I made an order convening a meeting of ABB Grain members to consider and, if thought fit, agree to a scheme of arrangement between them and ABB Grain. I also approved the explanatory statement and made related orders.
Application for Order under s 411(4) of the corporations Act 2001 (Cth)
Introduction 67 The details of the proposed Scheme of Arrangement are set out earlier in these reasons. I will not repeat them. 68 At the meeting of the shareholders of ABB Grain a resolution approving the scheme was passed by the required majority under s 411(4)(b) of the Act. The Court was asked to make an order approving the scheme. No party appeared to oppose the approval of the Scheme of Arrangement. I made an order approving the scheme and these are my reasons for doing so.
Revision of 2009 earnings guidance 69 There was one material new development between the first and second Court hearings. That development was the announcement by ABB Grain of a revised earnings guidance in the following terms: ABB's revised 2009 earnings guidance is underlying NPAT of $33 million to $43 million (excluding previously announced one-off expenses of approximately $8 million after tax and subject to market conditions and commodity price movements over the remainder of the year) compared to the previous NPAT guidance of $43 million to $53 million. 70 ABB Grain shareholders were advised of this revision by letter from the chairman of ABB Grain, by publication on the ASX website page for ABB Grain and by publication on ABB Grain's website. 71 The letter from the chairman of ABB Grain provided in part as follows: The revised earnings outlook has no impact on the Directors' unanimous recommendation in favour of the Scheme of Arrangement with Viterra. 72 The letter also advised shareholders that they were entitled to change their voting form and/or Scheme consideration if they wanted to do so. 73 The independent expert, KPMG Corporate Finance (Aust) Pty Ltd, considered the impact of the revised earnings guidance. The independent expert considered that the revised earnings guidance did not affect their opinion that the Scheme is fair and reasonable and in the best interests of ABB scheme shareholders.
Conditions precedent 74 I was satisfied on the evidence put before the Court that the conditions precedent to the effectiveness of the Scheme have been either satisfied or waived. The resolution in favour of the constitutional amendment was passed (see [8] above).
Approval of the scheme 75 The authorities suggest that in considering whether to make an order approving a scheme a Court should consider the following: 1. Whether the procedural matters relating to the meeting of shareholders convened to consider the Scheme have been complied with; 2. Whether the meeting of shareholders convened by the order of the Court has approved the Scheme with the required majority under s 411(4)(b); 3. Whether the Scheme is fair and reasonable; and 4. Whether the remaining requirements of the Act have been satisfied. (See Re Hostworks Group Limited (No 2) [2008] FCA 248 ("Hostworks Group Ltd (No 2)" at [10]-[23] per Mansfield J; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113 at [18]-[24] per Jacobson J; Re Permanent Trustee Co Limited [2002] 43 ACSR 601 at [8]-[10] per Barrett J; Re Central Pacific Minerals NL [2002] FCA 239 at [8]-[14] per Emmett J.) 76 As far as procedural matters were concerned, I was satisfied that, subject to one matter, there had been compliance with the orders made by the Court at the first Court hearing. 77 The fourth order made by the Court at the first Court hearing was in the following terms: On or before 3 August 2009 there be despatched by prepaid ordinary post (or in the case of overseas members, by airmail), to each ABB Grain shareholder appearing on the register of the Plaintiff's shareholders, a document substantially in the form or to the effect of the Scheme Booklet together with the voting forms, election forms, reply paid envelopes and fly sheets. 78 The evidence before me established that on 3 August 2009, 9797 packs containing the relevant information were lodged with Australia Post for posting on that day, and that on 4 August 2009 a further 10,978 packs were lodged for posting. Although not required to do so, ABB Grain caused packs to be mailed to any person newly registered as an ABB Grain shareholder in the period from 4 August to 4 September 2009. 79 At the second Court hearing, I made an order that the fourth order made at the first Court hearing be varied nunc pro tunc so that the date 4 August 2009 is substituted for 3 August 2009. A similar order was made by Mansfield J in Re Hostworks Group Ltd (No 2) (at [6]-[7]). 80 It seemed to me that it was appropriate to make such an order. The delay was only one day and it did not result in members being given less than 28 days notice of the meeting as required by s 249HA of the Act. There was no suggestion that the delay of one day had caused or may have caused any substantial injustice (s 1322(2) and see also s 1322(4)(d)). 81 As far as shareholder approval was concerned, at the meeting 60.45 per cent of Scheme shareholders, representing 83.57 per cent of ABB Grain's share capital, voted in favour of the Scheme. The requirements of s 411(4)(b)(ii) were satisfied. 82 As far as whether the scheme was fair and reasonable was concerned, I was satisfied that it was fair and reasonable. The scheme was supported by all the directors of ABB Grain. By reference to the volume weighted average price of ABB Grain shares up to and including 27 April 2009, being the period before the announcement of the proposed scheme, the implied valuation range of the aggregate of the scheme consideration together with the ABB Grain Dividend as at the announcement of the scheme on 19 May 2009 represented a premium of 47 per cent to 51 per cent. The independent expert expressed the opinion and continued to hold the opinion that the scheme was fair and reasonable and therefore in the best interests of shareholders in the absence of a superior proposal. 83 As far as satisfaction of other requirements of the Act was concerned, the scheme booklet, being the explanatory statement, was registered with ASIC as required by s 412(6) of the Act. ASIC stated that it has no objection to the Scheme (s 411(17)). 84 I made an order exempting ABB Grain from the requirement in s 411(11) as I considered it was appropriate to do so (s 411(12)). It was appropriate having regard to the nature of the scheme being an acquisition of shares and not involving, for example, a variation of rights. 85 I was satisfied that all other pre-conditions to the Court's approval were satisfied. 86 On the second hearing it was again brought to the Court's attention that the issuer intended to rely on the Court's approval for the exemption under s 3(a)(1) of the Securities Act 1933 of the United States.
Conclusion 87 In the circumstances, I considered that it was appropriate to make an order approving the scheme. 88 I record the fact that although he sought no formal right of appearance, Mr R J Whitington QC was present on behalf of Viterra and Viterra Australia at both Court hearings. I certify that the preceding eighty-eight (88) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.
Mincom Ltd
EAM Software Finance Pty Ltd
[2008] VSC 154
(1979) 22 SASR 481
(2007) 165 FCR 45
(2000) 156 FLR 349
The application was granted, with orders convening the shareholders’ meeting and approving the explanatory statement; the scheme was subsequently approved, ABB Grain was exempted from s 411(11), and the earlier dispatch deadline was varied nunc pro tunc.