People Telecom Limited, in the matter of People Telecom Limited [2009] FCA 180

REASONS FOR JUDGMENT 1 This is the first court hearing of an application to approve a scheme of arrangement. Accordingly, the principal orders which are sought at this hearing are orders under section 411(1) of the Corporations Act 2001 (Cth) ("the Act"), that the plaintiff convene a meeting of members of the company and an order approving the explanatory statement for distribution to shareholders. 2 The scheme is an acquisition scheme between the plaintiff, People Telecom Limited ("People"), and its members, under which all of the issued capital of People will be acquired by M2 Telecommunications Group Ltd ("M2") via its subsidiary M2 Telecommunications Pty Ltd. The details of the scheme and the relevant principles and other matters are fully set out in written submissions provided to me by Senior Counsel for People. In accordance with the usual practice, I have marked the submissions as MFI-1. 3 Mr Oakes has taken me in some detail this afternoon through the scheme booklet and the evidence in support of the application. There are two matters in respect of which disclosure is made in Mr Oakes' written submissions. The first is that there is a break fee of up to $300,000 payable by People in the circumstances set forth in the Scheme Booklet. The maximum break fee that may be payable is in excess of the one percent guidelines referred to in the Takeovers Panel Guidance Note. However, the directors approved the break fee figure for a number of reasons which I shall refer to briefly. 4 The details of the break fee are addressed in the affidavit of Mr Barry John Hamilton, who is the non-executive Chairman of People. Importantly, the break fee is not payable if the proposed scheme is not approved by the shareholders, thus it cannot be said to be a matter which could influence voting at the scheme meeting: see Re SFE Corporation Limited [2006] FCA 670 per Gyles J at [6] to [7]; see also Re APN News & Media Ltd (2007) 62 ACSR 400 at [43]. 5 I am satisfied that there is sufficient disclosure of this matter in the Scheme Booklet. One of the matters which the directors took into account in coming to the view that the break fee is not excessive is that the break fee which is payable constitutes a reasonable amount to compensate M2 for the costs and disbursements incurred directly or indirectly by M2, as a result of the transaction not being implemented. 6 Moreover, the scheme makes provision for a break fee to be payable to People by M2. It has been submitted that this circumstance provides for a degree of neutrality in the break fee provisions. People estimates the costs and expenses of the scheme process at approximately $500,000. This is another matter which the directors have taken into account in coming to the view that the break fee is not excessive. 7 The second matter to which Mr Oakes made reference is the provisions contained in proxy voting deeds. Certain shareholders have committed themselves to voting in favour of the transaction. The proxy deeds make provision for this. The proxy commitments are not given for consideration, nor are they given to representatives of M2 or its subsidiary which is to be the acquirer. 8 I have therefore come to the view that this is not a barrier to the making of the orders which are sought today. I do not consider that the proxy voting deeds would result in the need for convening of any separate class meetings. All of the other matters to which Mr Oakes took me this afternoon are in accordance with established procedures which have been considered in various authorities in this court and also in the Supreme Court of New South Wales. 9 I am satisfied that the matters which are required to be proved at the first court hearing have been proved in the evidence to which I have been taken. There is no order which is sought in the orders I propose to make that go beyond existing practice. Otherwise, it is sufficient to say that all of the necessary matters have been covered in Mr Oakes' written submissions. 10 Accordingly, I propose to make orders in accordance with the draft orders which I will sign and date and place with the court papers. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.