Nenna v Australian Securities and Investments Commission

YATES J: 1 The plaintiff, iProperty Group Limited, seeks orders pursuant to ss 411(4)(b) and 411(6) of the Corporations Act 2001 (Cth) (the Act) approving a scheme of arrangement, the terms of which are contained in Annexure 5 to the scheme booklet which is Exhibit A in the proceeding (the scheme). 2 On 14 December 2015, I made orders pursuant to ss 411(1) and 1319 of the Act providing for the convening of a meeting of members to consider the scheme and, if thought fit, agree to it (the scheme meeting): iProperty Group Limited, in the matter of iProperty Group Limited [2015] FCA 1507 (my earlier reasons). 3 On 28 January 2015, the meeting was held and the scheme was agreed to by the majorities required under s 411(4)(a)(ii) of the Act. 4 The following affidavits have been read in support of the orders now sought: Patrick Grove, affirmed 28 January 2016; David John Parkinson, affirmed 28 January 2016; Sarah Luise Turner, affirmed 29 January 2016; and Andrew John Rich, affirmed 1 February 2016 and affirmed 2 February 2016. 5 On the evidence before me, I am satisfied that the explanatory statement, represented by the scheme booklet, was registered with the Australian Securities and Investments Commission (ASIC) on 14 December 2015. The scheme meeting was convened and held under s 411 of the Act in accordance with the orders made on 14 December 2015. At the meeting held on 28 January 2016, 91.03% of the members present and voting (either in person or by proxy) voted in favour of the scheme. Further, 97.48% of the votes were cast in favour of the scheme. A notice of the second court hearing was published in The Australian newspaper on 28 January 2016, also in accordance with the orders made on 14 December 2015. ASIC has provided a statement in writing that it has no objection to the scheme. Accordingly, there is no impediment under s 411(17) of the Act to the Court giving the approval that is sought. 6 Further, I am satisfied that the scheme is fair and reasonable. In this connection, I note that the plaintiff's independent directors unanimously recommended the scheme to members; no superior proposal has been forthcoming; the independent expert, Deloitte Corporate Finance Pty Limited, has provided an opinion that the scheme is fair and reasonable and, therefore, in the best interests of members; the scheme has been agreed to by the members, with the significant majorities I have recorded; and no person has come forward to oppose the scheme. 7 I record the following additional matters. 8 First, as noted at [22] of my earlier reasons, the scheme is subject to a condition precedent in relation to a Maximum Cash Condition Precedent. I am satisfied that this condition precedent has been satisfied and that all other conditions precedent have been satisfied or waived. 9 Secondly, as noted at [33] of my earlier reasons, one of the pre-implementation steps for the scheme is Bidco's acquisition of the shares currently held by REA Austin in the plaintiff. It has come to the plaintiff's attention that the Share Sale Deed entered into on 7 December 2015 incorrectly, but innocently, understated, by 12,275 shares, the number of shares in the plaintiff currently held by REA Austin. On 29 January 2016, the relevant parties entered into a Deed of Amendment to correct this error for the purpose of the transfer of the shares to Bidco. In a number of places, the scheme booklet also refers to the incorrect number of shares held by REA Austin. I accept that this error in the scheme booklet, properly considered, is inadvertent and immaterial. There is no reason to think that the understatement of the shares held by REA Austin - representing 0.0065% of the plaintiff's shares on issue - would have had any effect whatsoever on members' voting intentions in respect of their own shares. 10 Thirdly, as noted at [44] of my earlier reasons, at the first court hearing the plaintiff gave notice that it would seek an order under s 1322(4) of the Act for the failure to comply fully with s 412(1) of the Act with respect to those shareholders registered as having addresses in Malaysia. In this connection, s 412(1) of the Act provides that with every notice convening a meeting under s 411 of the Act, an explanatory statement should be sent to the members, explaining the effect of the compromise or arrangement and setting out prescribed information. As discussed in my earlier reasons, this step was not feasible for the plaintiff's shareholders with addresses in Malaysia. 11 Section 1322(4) of the Act provides: Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; 12 Section 1322(6) of the Act provides: The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made; and (b) in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and (c) in every case - that no substantial injustice has been or is likely to be caused to any person. 13 In Re DUET Management Company 1 Ltd (2013) 95 ACSR 34; [2013] NSWSC 817 at [17], Black J said: It is well established that s 1322 of the Corporations Act reflects a broad legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements, where such non-compliance is the product of honesty or inadvertence and where the court can avoid its effects without prejudice to third parties or the public interest in compliance with the law, the court will have regard to the purposes of the Corporations Act, the interests of all affected parties and the public interest in exercising its powers under the section: Re Wave Capital Ltd (2003) 47 ACSR 418; [2003] FCA 969. Section 1322(4) of the Corporations Act in turn allows the court to declare that an act, matter or thing purporting to have been done, or any proceedings purporting to have been instituted or taken, under the Corporations Act or in relation to a corporation is not invalid by reason of a contravention of a provision of the Act or a provision of the corporation's constitution. The power under s 1322(4)(a) may be exercised where, relevantly, the contravention is essentially procedural, or the persons concerned had acted honestly, or it is just and equitable that an order be made, and provided that no substantial injustice has been or is likely to be caused to any person: s 1322(6). The conditions specified in s 1322(6) are alternative, so that only one of them need be satisfied in order to allow an order to be made under s 1322(4). The width of the power under s 1322(4) of the Corporations Act has recently been confirmed by the High Court of Australia in Weinstock v Beck (2013) 297 ALR 1; 93 ACSR 231; [2013] HCA 14. French CJ there observed (at [39]) that: [39] … In accordance with its evident purpose, s 1322(4)(a) is to be construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form. Hayne, Crennan and Kiefel JJ observed (at [55]) that "the power given to the court by s 1322(4)(a) is not to be hedged by any implied limitation" and Gageler J also referred (at [60]), with apparent approval, to the Court of Appeal's observation in that case that s 1322(4)(a) is "to be construed with all the liberality that its language permits". 14 In Nenna v Australian Securities and Investments Commission (2011) 198 FCR 32; [2011] FCA 1193 at [46]-[82], Middleton J accepted, by reference to authority, that the irregularities to which s 1322(4) of the Act is directed can include instances of deliberate non-compliance with the Act. The question that then arises is whether the requirements of s 1322(6) of the Act are satisfied in the circumstances of the case. 15 I doubt that, strictly speaking, it is necessary to make an order under s 1322(4)(a) of the Act in the circumstances of the present case, particularly in light of s 1322(2) of the Act which provides that a proceeding under the Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by an order of the Court and the Court declares the proceeding to be invalid. Here, the Court was apprised of the difficulty with respect to the Malaysian shareholders and accommodated that difficulty in the orders made on 14 December 2015. Nevertheless, an order of the kind now sought was made in similar circumstances by Black J in In the matter of DUET Management Company 1 Limited; DUET Management Company 1 Limited as responsible entity of Diversified Utility and Energy Trust No. 1; DUET Management Company 2 Limited as responsible entity of Diversified Utility and Energy Trust No. 3 (No 2) [2013] NSWSC 1060 and by Jacobson J in Atlantic Gold NL, in the matter of Atlantic Gold NL (No 2) [2014] FCA 869. So that there is no doubt about the matter, I will make an appropriate order in this case. 16 Fourthly, the scheme defines an Excluded Shareholder as: any Target Shareholder who is a member of the Bidder Group or any Target Shareholder to the extent that, at the relevant time, it holds Target Shares on behalf of, or for the benefit of, any member of the Bidder Group. 17 In order to identify more precisely the person or persons who may fall within this definition, one is led to a number of further definitions in the scheme. 18 As noted at [7] of my earlier reasons, it is known that REA Austin is currently the only Excluded Shareholder. However, under the Share Sale Deed, Bidco will acquire all the shares held by REA Austin on the business day after the date on which the scheme becomes effective. Accordingly, on the Scheme Implementation Date, Bidco would then be the sole Excluded Shareholder. So as to identify Bidco and REA Austin as the only entities who are or were Excluded Shareholders, the plaintiff seeks an order under s 411(6) of the Act to amend the definition of the term Excluded Shareholder in the scheme to read "Bidco and REA Austin". This approach has been adopted in other cases: see, for example, Prime Infrastructure Holdings Ltd [2010] NSWSC 1337 at [6]-[8]; Talent2 International Limited, in the matter of Talent2 International Limited (No 2) [2012] FCA 926 at [16]-[17]; Goodman Fielder Limited, in the matter of Goodman Fielder Limited (No 2) [2015] FCA 259 at [10]. I am satisfied that such an amendment is appropriate in the present case. 19 Fifthly, as noted in the orders made on 14 December 2015, Rollco and realestate.com.au seek to rely on the Court's approval of the scheme for the purpose of qualifying for an exemption from the registration requirements of the Securities Act of 1933 (US), provided for by s 3(a)(10) of that Act, in connection with the implementation of, and the provision of consideration under, the scheme. That matter will be noted in the orders I propose to make. 20 All necessary procedural requirements have been satisfied for the approval that is now sought from the Court. There is no discretionary reason why approval should not be given. I therefore propose to order that the scheme be approved. I will also order that, pursuant to s 411(12) of the Act, the plaintiff be exempted from compliance with s 411(11) of the Act. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.