MYOB Group Limited, in the matter of MYOB Group Limited (No 2) [2019] FCA 668

Federal Court of Australia|2019-04-24|Before: Markovic J

Background 3 On 28 March 2019 the solicitors for MYOB approached the Court seeking that orders pursuant to s 1319 of the Act for despatch of the Supplementary Disclosure be made in Chambers and without the need for an oral hearing. The following facts gave rise to that application. 4 On 19 March 2019 Kohlberg Kravis Roberts & Co. L.P (KKR) sent a letter on behalf of ETA Australia Holdings III Pty Ltd (ETA Australia) to MYOB informing it, among other things, that the all cash consideration of $3.40 per share under the scheme implementation agreement dated 23 December 2018 (SIA) was ETA Australia's best and final offer subject to no Superior Proposal (as defined in the SIA) emerging (KKR Letter). 5 On 20 March 2019 an announcement about the KKR Letter was released by MYOB to the ASX platform (ASX Announcement) and on that same day the Australian Securities and Investments Commission (ASIC) wrote to MYOB's solicitors requesting that the information disclosed in the ASX Announcement be sent to all MYOB shareholders by way of supplementary disclosure. 6 A draft of the Supplementary Disclosure was prepared and provided to ASIC. On 28 March 2019 ASIC informed MYOB, through its solicitors, that it had "no comments" on the Supplementary Disclosure and reminded MYOB that it expected that shareholders would be provided with the information at least 10 days prior to the Scheme Meeting to enable them to consider and, if necessary, seek advice on, the disclosure. 7 A copy of the draft Supplementary Disclosure was provided to Grant Samuel & Associates Pty Limited, the independent expert appointed by the directors of MYOB (Independent Expert). 8 In the course of the preparation of the Supplementary Disclosure the MYOB directors confirmed that they continued to unanimously maintain their recommendation that MYOB shareholders vote in favour of the Scheme in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Scheme was in the best interests of MYOB shareholders; that subject to those same qualifications, they intended to vote all of the MYOB shares held or controlled by them in favour of the Scheme; and they were not aware of any Superior Proposal and had no reason to believe that a Superior Proposal would emerge in the future.

Consideration 9 Section 1319 of the Act has a wide operation. A direction that a supplementary document be despatched to members for the purposes of a meeting, where a notice of meeting and explanatory statement have already been sent, is an "ancillary" or "consequential" direction in relation to that meeting and therefore within the ambit of s 1319 of the Act: see Centro Retail Limited and Centro MCS Manager Ltd in its Capacity as Responsible Entity of Centro Retail Trust [2011] NSWSC 1321 at [16]. 10 As observed by McKerracher J in Amcom Telecommunications Limited, in the matter of Amcom Telecommunications Limited (No 2) [2015] FCA 410 at [12], where a meeting has already been convened under s 411 of the Act, only information approved by the Court for despatch to shareholders should be provided to members. At [13] his Honour noted that the power under s 1319 had been used to give leave to an applicant company to despatch supplementary information in relation to a scheme of arrangement. 11 I was satisfied that an order for despatch of the Supplementary Disclosure to MYOB shareholders should be made. The Supplementary Disclosure serves to communicate the matters set out in the ASX Announcement. It was appropriate to provide it to MYOB shareholders to ensure that those matters were brought to their attention so that they could take them into account in deciding how to vote at the Scheme Meeting. 12 The orders required despatch of the Supplementary Disclosure to occur on or before 5 April 2019. This was at least 10 days before the Scheme Meeting, and thus was consistent with ASIC's Regulatory Guide 60 at RG 60.93 which provides that it is generally appropriate for scheme participants to be given at least 10 days to consider any supplementary documentation distributed before being required to vote on a scheme. 13 Finally, given that the Supplementary Disclosure reflected the disclosure in the ASX Announcement, which was by that time already publicly available information, I was satisfied that the orders sought by MYOB for despatch of the Supplementary Disclosure could be made in Chambers without the need for an oral hearing.

approval of the Scheme 14 The details of the Scheme are set out in MYOB (No 1) at [24]-[29]. 15 No interested party appeared at the second court hearing. At the first court hearing Manikay Partners, LLC, Manikay Master Fund, LP, Manikay Merger Fund, LP and Jangus Pty Ltd (collectively, Manikay Parties) were granted leave to be heard in the proceeding without becoming a party to it and were unsuccessful in their application to adjourn the first court hearing: see MYOB (No 1) at [13]-[21]. The evidence disclosed that, following the first court hearing, there had been an exchange of detailed correspondence between the Manikay Parties and MYOB and their respective legal representatives. Despite that the Manikay Parties did not appear at the second court hearing, and I was informed by senior counsel appearing for MYOB that they had voted in favour of the Scheme.

Legal principles 16 The Court has a discretion whether to approve a scheme and is not bound to approve it merely because it has previously made an order convening a scheme meeting or because the statutory majorities have been achieved: Re Seven Network Ltd (No 3) (2010) 77 ACSR 701; [2010] FCA 400 (Seven Network) at [31]. 17 In Seven Network at [35]-[39] Jacobson J set out the considerations, taken from the Corporations and Markets Advisory Committee report dated December 2009, which his Honour considered were relevant to the exercise of the Court's discretion to approve a scheme: 35 … The first is whether the shareholders have voted in good faith and not for an improper purpose: Re Foundation Healthcare Ltd (No 2) (2002) 43 ACSR 680. 36 Second, whether the proposal is fair and reasonable so that an intelligent and honest man or woman who was a member of the relevant class, properly informed and acting alone might approve it: Fowler v Lindholm (2009) 178 FCR 563 at [79]. 37 The third is whether the plaintiff has brought to the attention of the court all maters [sic] that could be considered relevant to the exercise of the court's discretion: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [7]. 38 The fourth, and related consideration, is whether there has been full and fair disclosure of all information material to the decision: Re NRMA (No 2) at [30]. 39 The fifth is whether minority shareholders would be oppressed by the scheme: Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd (2002) 42 ACSR 582. (parallel citations omitted.) 18 Justice Jacobson noted that a further consideration is whether the scheme offends public policy: at [40] citing Re CSR Ltd (2010) 265 ALR 703 at [51]-[56].

Procedural requirements 19 The evidence relied on by MYOB established that: (1) the Orders had been lodged with ASIC and the Scheme Booklet had been registered by ASIC pursuant to s 412(6) of the Act; (2) the Scheme Booklet, substantially in the form approved at the first court hearing, was despatched to each Scheme Shareholder in accordance with the Orders; (3) the Supplementary Disclosure was despatched to each Scheme Shareholder in accordance with the orders made by the Court on 29 March 2019; (4) the Scheme Meeting was held in accordance with the Orders. It was chaired by Justin Milne and held at the time and place specified in the Scheme Booklet; (5) the statutory majorities were obtained at the Scheme Meeting with 82.59% of shares voted in favour of the Scheme, representing 73.89% of members present. The number of shares voted at the Scheme Meeting, based on votes for, against and open, as a percentage of the total electorate, represented 62.26% of all shares on issue. MYOB submitted that this represented 12.86% of members and, if the Excluded Shares are not included in that calculation, the percentage of shares participating increased to 75.58%. In Avoca Resources Limited, in the matter of Avoca Resources Limited [2011] FCA 208 (Avoca) at [21] Gilmour J noted that since the decision in Lion Nathan Ltd, in the matter of Lion Nathan Ltd (No 2) [2009] FCA 1261, the Court had expressed an interest in knowing the turnout of eligible shares by percentage and, more recently, of shareholders. His Honour also noted that "[t]hese percentages have no statutory significance, but a low turnout percentage might suggest a flaw in the convening procedure". In Avoca, where there were voter turnout percentages of 72.38% by shares represented and 11.49% by shareholders participating, Gilmour J found that no inference to that effect ought to be drawn. Similarly, given the evidence about the mail out of the scheme documents, I would not infer that there was any flaw in the convening procedure for the Scheme Meeting; (6) the date of the second court hearing was advertised in The Australian newspaper on 20 April 2019 in accordance with the Orders; and (7) each of MYOB and ETA Australia certified, in relation to matters within their respective knowledge, that as at 8.00 am Sydney time on 24 April 2019 the conditions precedent in cl 3.1 of the SIA, other than the condition precedent in cl 3.1(d), had been satisfied or waived in accordance with the SIA. 20 By letter dated 23 April 2019 ASIC informed MYOB pursuant to s 411(17)(b) of the Act that it had no objection to the proposed Scheme.

Discretionary matters 21 Having considered the matters relevant to the exercise of the Court's discretion whether or not to approve a scheme, I was satisfied that an order approving the Scheme should be made. My reasons follow. 22 First, there was nothing to suggest that shareholders voted other that in good faith or that they cast their votes for an improper purpose or that any member was treated in a way that could be characterised as oppressive. 23 Secondly, as to fairness I note the following matters: (1) at the first court hearing, based on the evidence before the Court, I made the orders sought by MYOB. In doing so I needed to be satisfied that the Scheme was "of such a nature and cast in such terms that, if it achieves the statutory majority at the … meeting the Court would be likely to approve it on the hearing of a petition which is unopposed": see MYOB (No 1) at [37] quoting FT Easement & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 per Street CJ. Subject to the correspondence received from the Manikay Parties addressed at [15] above, no one came forward to MYOB or the Court to oppose the Scheme and no issues were raised by shareholders at the Scheme Meeting. The Scheme was well supported by those members who attended the meeting in person or by proxy; (2) the Independent Expert expressed the opinion that the Scheme is fair and reasonable and thus in the best interests of MYOB shareholders. Putting to one side the correspondence with the Manikay Parties, there is no evidence contrary to the opinion expressed by the Independent Expert; and (3) the content of Scheme Booklet has been verified: see MYOB (No 1) at [45]-[46]. 24 Thirdly, there was no criticism of the substance of the disclosure by any member or regulatory body other than the Manikay Parties. Notwithstanding their criticism, on 2 April 2019 Manikay Partners, LLC informed MYOB that it would vote all of the shares that it owned or controlled in favour of the Scheme. 25 Fourthly, ASIC has provided its "no objection statement" pursuant to s 411(17)(b) of the Act and has not raised any public policy concerns. There is nothing on the face of the Scheme to suggest that any such concern arises. 26 Fifthly, I was satisfied that MYOB had brought all matters that could be considered relevant to the exercise of the Court's discretion to the Court's attention: see Re Permanent Trustee Company Ltd (2002) 43 ACSR 601; [2002] NSWSC 1177 at [7]. This included evidence of the correspondence between MYOB and the Manikay Parties; of the way in which MYOB addressed the delivery of the Scheme Booklet in cases where email delivery had resulted in a bounce-back of the email first sent; and the posting of hard copy scheme documents to shareholders coming on to the Register after the initial mail out was complete.

conclusion 27 For those reasons I made the orders sought by MYOB. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.

Corporations Act 2001(Cth)ss 411(4)(b), 1319

MARKOVIC J: 1 On 13 March 2019 I made orders (Orders), including an order pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act), that the plaintiff, MYOB Group Limited (MYOB), convene a meeting (Scheme Meeting) of Scheme Shareholders for the purpose of considering and, if thought fit, agreeing (with or without modification) to the scheme proposed to be made between Scheme Shareholders (as defined in the explanatory statement required by s 412(1)(a) of the Act (Scheme Booklet)) and MYOB (Scheme) and for the distribution of the Scheme Booklet to Scheme Shareholders: see MYOB Group Limited, in the matter of MYOB Group Limited [2019] FCA 484 (MYOB (No 1)). 2 On 29 March 2019 I made orders pursuant to s 1319 of the Act for the despatch of a supplementary explanatory statement (Supplementary Disclosure), and on 24 April 2019 I made orders, including an order pursuant to s 411(4)(b) of the Act, approving the Scheme. These are my reasons for making those orders.

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