Plaintiff v Defendant

1 The issue in this case is whether the defendant should be permitted to pay a $25 million special dividend to its shareholders using borrowed funds.

2 The plaintiff, KGD Investments Pty Ltd ('KGD'), seeks orders permanently restraining the defendant, Placard Holdings Pty Ltd ('Placard Holdings'), from implementing a proposal to borrow an additional $29 million and to apply $25 million of the borrowed amount to pay a special dividend to shareholders and use the balance for working capital.

3 Placard Holdings is the ultimate holding company of Placard Pty Ltd ('Placard') which is engaged in business as a manufacturer of various cards including credit cards, gift cards and drivers licences. Placard's customers include various financial institutions, department stores and government agencies.[2]

4 Until about 3 October 2012, KGD (which at that time was the ultimate holding company of Placard) held 100 per cent of the shares in Placard through a holding company, Smart Pony Pty Ltd. On about 3 October 2012, KGD sold all of the issued capital in Smart Pony Pty Ltd[3] for agreed consideration[4] comprising a substantial cash amount and 24.41 per cent of the issued share capital of Placard Holdings.[5]

5 The cash component for the sale transaction was partly funded by a wholly owned subsidiary of Placard Holdings, Placard Investments, which drew down funds on a facility agreement with Bank of Western Australia (subsequently with the Commonwealth Bank of Australia trading as Bankwest) ('Bankwest facility'). The balance was sourced from the consideration paid for the acquisition of the remaining 75.59 per cent of the issued share capital of Placard Holdings by external investors and management.[6]

6 The external investors are RMB Australia Holdings Ltd, RMB Capital Partners Pty Ltd ('RMB Capital') (in its own capacity and as trustee for the Castlereagh Street (Swan) Co-Investment Trust) and Mr Steven Furman, as trustee for the Highpoint Investment Unit Trust, (collectively the 'Investors'). Members of Placard Holdings' senior management team (the 'Management Shareholders') also acquired individual shareholdings.

7 There are three classes of shares in Placard Holdings: A preferred shares, B preferred shares and ordinary shares. The Investors and the Management Shareholders own A preferred shares totalling 75.59 per cent of the issued share capital. KGD owns B preferred shares totalling 24.41 per cent of the issued share capital[7] as trustee for the Ganesh Family Trust.

8 As part of the sale transaction all shareholders of Placard Holdings entered into a shareholders agreement (the 'Shareholders Agreement'). The Shareholders Agreement provides that the Investors and the Management Shareholders have a preferred right to receive dividends or other distributions from Placard Holdings pro rata until such time as they have recovered the amount they paid for their shares.[8]

9 Since 3 October 2012, six (interim or final) dividends have been declared and paid by Placard Holdings to the Investors and Management Shareholders pursuant to the Shareholders Agreement representing approximately 34.5 per cent of the amount they paid for their shares. Accordingly, those shareholders currently have an aggregate balance representing approximately 65.5 per cent of the amount they paid for their shares which has not been returned by way of dividend or other distribution.[9]

10 On 15 July 2015, Mr Christopher Nunis, the CEO of the Placard Group and a director of Placard Holdings, circulated a board paper to the other directors of Placard Holdings (being Mr Steven Furman, Mr Visvalingam Ganeshalingam, Mr Karl Magnus Hildingsson and Mr Mark Summerhayes), in which he recommended an extension of the Bankwest facility from its then current level of $36 million to $65 million with a five-year term ('Loan Proposal') and a $25 million special dividend to be paid by Placard Holdings to its shareholders ('Dividend Proposal') (collectively the 'Loan and Dividend Proposal').[10] The Loan Proposal would involve increased borrowings of $29 million, with $25 million of that sum to be used for the Dividend Proposal and the balance for working capital.[11]

11 By operation of clause 10.1 of the Shareholders Agreement, the effect of the Dividend Proposal is that the A preferred shareholders, being the Investors and the Management Shareholders, are to recoup the balance of the amounts they have respectively invested and, as a consequence, their entitlement to prioritised distributions under the Shareholders Agreement is to be extinguished.[12]

12 Under the Loan and Dividend Proposal all shareholders are to receive a share of the balance of the dividend payment in proportion to their shareholdings.

13 On 12 August 2015, KGD received notice that the Loan and Dividend Proposal would be put to the board of Placard Holdings at a board meeting on 26 August 2015. This resulted in the commencement of proceedings and an application by the plaintiff for interlocutory relief.

14 On 27 August 2015, the Court made expedited trial orders on the defendant's undertaking to KGD not to take any step to resolve the Loan Proposal or the Dividend Proposal until the hearing and determination of the proceeding.

(a) By signing this agreement, each of the parties set out in column 1 of Schedule 1 applies to have issued to it the Shares specified against their name in column 7 of Schedule 1 and agrees to hold the Shares subject to the Constitution and to be bound by and observe such provisions.[13]

...

(a) The Investors and any Management Shareholder will, subject to clause 10.1(c), have the preferred right to receive dividends or other distributions from the Company (including by way of buy back or capital reduction) (Distributions) pro rata until such time as the Investors have recovered the amount paid by them for the Shares;

(b) Following the receipt of the preferred returns contemplated by clause 10.1(a), all Shareholders will be entitled to participate in their Proportional Entitlement in further Distributions.[14]

Pursuant to clause 10.1(c), each Management Shareholder who received a preferred distribution under clause 10.1(a) directed Placard Holdings to pay the distribution in a particular manner which reflected the fact that the Management Shareholders subscribed for shares using loan funds provided by Placard Holdings and KGD.

16 Schedule 4 to the Shareholders Agreement relates to the rights attaching to preference shares. Clause 1.8 provides:

1.8 Participation in profits and capital

The A Preferred Shares rank, for the purpose of all participation in profits and capital of the Company, whether by way of dividend, repayment of capital, distribution of surplus assets or profits or otherwise, both before and after the winding up of the Company...[15]

17 Schedule 6 to the Shareholders Agreement contains the Constitution of Placard Holdings. The Constitution relevantly provides:

(a) The company may issue preference shares including preference shares which are, or at the option of the company or holder are, liable to be redeemed or convertible into ordinary shares.

(b) Each preference share confers on the holder a right to receive a preferential dividend, in priority to the payment of any dividend to the ordinary shares, at the rate and on the basis decided by the directors under the terms of issue and subject to any requirements in the Shareholders Agreement.

(c) In addition to the preferential dividend and rights on winding up, each preference share may participate with the ordinary shares in profits and assets of the company, including on a winding up, if and to the extent the directors decide under the terms of issue.[16]

...

18 Schedule 7 to the Shareholders Agreement contains a management services agreement between Placard Holdings and RMB Capital, which relevantly provides:

(a) This Agreement comes into effect between the parties from the date when Completion occurs.

(b) During the Term, the Company will engage RMBCP to supply, and RMBCP agrees to supply, the Services to the Company in accordance with the terms and conditions of the Agreement.[17]

Services all or any of the following services:

1. advice in relation to financial, operational and strategic issues relevant to the Company and the industry in which it operates;
2. such other services as RMBCP and the Company agree from time to time.

Term the period from the date of this Agreement up to and including the date on which this Agreement is terminated. [18]

Corporations Act

20 Section 232 of the Corporations Act 2001 (Cth) ('the Act') provides:

Grounds for Court order

The Court may make an order under section 233 if:

(a) the conduct of a company's affairs; or

(b) an actual or proposed act or omission by or on behalf of a company; or

(c) a resolution, or a proposed resolution, of members or a class of members of a company;

(d) contrary to the interests of the members as a whole; or

(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

21 Section 233(1)(i) provides:

Orders the Court can make

(1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order;

...

(i) restraining a person from engaging in specified conduct or from doing a specified act.

22 Section 254T of the Act provides for the circumstances in which a company may pay a dividend. Relevantly, s 254T provides:

Circumstances in which a dividend may be paid

(1) A company must not pay a dividend unless:

(a) the company's assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend; and

(b) the payment of the dividend is fair and reasonable to the company's shareholders as a whole; and

(c) the payment of the dividend does not materially prejudice the company's ability to pay its creditors.

...

23 KGD submits that by resolving to implement and by implementing the Loan Proposal or the Dividend Proposal, Placard Holdings would be resolving to act, and acting in a way that is:

(a) contrary to the interests of the members of Placard Holdings as a whole (section 232(d)); and

(b) oppressive to, unfairly prejudicial to or unfairly discriminatory to KGD (section 232(e)).

Further, KGD submits that the payment of the dividend would not be fair and reasonable to the company's shareholders as a whole (s 254T(1)(b)).

24 Accordingly, KGD submits that there are three key issues for determination:

(a) Whether the Loan and Dividend Proposal is contrary to the interests of members of Placard Holdings as a whole within the meaning of s 232(d) of the Act;

(b) Whether the Loan and Dividend Proposal is oppressive to, unfairly prejudicial to, or unfairly discriminatory against KGD within the meaning of s 232(e) of the Act; and

(c) Whether the Dividend Proposal is fair and reasonable to Placard Holdings' shareholders as a whole within the meaning of s 254T(1)(b) of the Act.

25 There was no dispute between the parties as to the applicable legal principles which are well-established. These can be considered briefly.

Sections 232(d) and 232(e) of the Act

26 It is clear from the legislative history and the authorities that the conditions in s 232 (the satisfaction of which enliven the Court's remedial jurisdiction under s 233) are to be read broadly and without being confined by technical distinctions.[19]

27 Each subsection is to be given separate and independent operation, although the conduct, acts or omissions, resolutions or proposed resolutions relevant for the purposes of s 232(d) may overlap with those relevant for the purposes of s 232(e).[20]

28 The oppressive conduct referred to in s 232(e) is concerned with 'unfairness'. As Brennan J observed in Wayde v New South Wales Rugby League Ltd,[21] proof of mere prejudice to or discrimination against a member is insufficient to attract the Court's jurisdiction to intervene.[22] The test is an objective one; 'whether objectively, in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair'.[23]

29 In Joint v Stephens,[24] the Victorian Court of Appeal (Nettle, Ashley, and Neave JJA) held that the task of deciding whether there has been commercial unfairness is to be undertaken in the context of the particular relationship which is in issue.[25] The Court noted the observation in Ford[26] that the assessment of commercial unfairness will not infrequently involve a balancing exercise between competing considerations.

30 For this purpose the terms of any agreement between the shareholders, and the company's powers under its Constitution, may be relevant to the question of whether particular conduct is oppressive.[27]

31 In determining whether conduct is contrary to the interests of members as a whole under s 232(d) the Court is not confined to a consideration only of conduct that can be characterised as 'commercially unfair'.[28]

32 There does not appear to be any case law specifically on the meaning of the phrase 'fair and reasonable to the company's shareholders as a whole' in the context of s 254T(1)(b).

33 The Explanatory Memorandum to the Corporations Amendment (Corporate Reporting Reform) Bill 2010 (Cth) which when enacted as the Corporations Amendment (Corporate Reporting Reform) Act 2010 (Cth) introduced the current form of s 254T(1)(b) into the Act states that 'the second and third limbs of the new test align with the requirements imposed on companies in relation to conducting share capital reductions and share buybacks under Part 2J of the Corporations Act'.[29] Section 256B(1) of the Act includes the same 'fair and reasonable' formulation in relation to share capital reductions.

34 In Elkington v CostaExchange Ltd,[30] this Court considered s 256B(1) and held that the phrase 'fair and reasonable' in s 256B(1) conveyed 'one merged concept' and that in 'assessing what is fair and reasonable, a wide range of matters relevant to the particular circumstances of the case will need to be taken into account'.[31] I propose to take the same approach when assessing what is 'fair and reasonable' in the context of s 254T(1)(b) of the Act.

35 Finally, the expert report of Mr Mark Korda relied on by the plaintiff is directed to a consideration of whether the Loan and Dividend Proposal is contrary to the interests of the company and not (expressly at least) whether it is contrary to the interests of members as a whole (s 232(d)) or fair and reasonable to shareholders as a whole (s 254T(1)(b)). The plaintiff submitted for this purpose that Placard Holdings' interests are a 'proxy for the formulation of interests of members as a whole or interests of shareholders as a whole'.[32] For the purposes of argument in this trial, senior counsel for the defendant was willing to proceed on the basis that references to the company could be read interchangeably with references to members as a whole in s 232(d) and shareholders as a whole in s 254T(1)(b).[33] As a result argument proceeded on that basis.

36 As acknowledged by the authorities, although ss 232(d) and (e) of the Act are to be given separate and independent operation, the factual considerations relevant to the purpose of one provision may overlap with those relevant to the other provision. That is the case here. The expert and lay evidence analysed below informs my determinations on the questions raised in relation to ss 232 (d) and (e) as well as s 254T(1)(b). Accordingly, I propose to analyse the expert evidence, as well as relevant contextual matters raised by the plaintiff, before coming to a separate conclusion on each of the questions for determination.

37 KGD relies on the expert evidence of Mr Korda, whose firm was engaged to consider and provide an opinion on whether the entry into the Loan and Dividend Proposal is (a) likely to be contrary to Placard Holdings' interests and (b) likely to disadvantage KGD as a minority shareholder of Placard Holdings.[34]

38 In relation to question (a), Mr Korda concludes that entry into the Loan and Dividend Proposal is likely to be contrary to Placard Holdings' interests. In Mr Korda's opinion, there are commercially adverse impacts to Placard Holdings entering into the Loan and Dividend Proposal in respect of:

(a) Decreased profitability and cash holdings through increased interest expense;

(d) Amended facility terms including a bullet payment increasing from $26 million to $45 million.

39 In relation to question (b), Mr Korda concludes that entry into the Loan and Dividend Proposal is likely to disadvantage KGD as a minority shareholder of Placard Holdings. In Mr Korda's opinion, there are commercially adverse impacts to KGD in Placard Holdings entering into the Loan and Dividend Proposal in respect of:

(a) Less return for its interest in Placard Holdings upon a sale because of higher interest costs that may be disproportionate to the value KGD receives from the Dividend Proposal; and

(b) Increased risk profile of its investment in Placard Holdings because of higher leverage.

40 Further, in Mr Korda's opinion, KGD is disadvantaged in its capacity as minority shareholder to the extent that it may be responsible for disproportionately more interest costs than its entitlement to distributions under the Loan and Dividend Proposal. KGD effectively bears 24.41 per cent of the additional interest costs associated with the proposal however is only entitled to receipt of 3.45 per cent of the dividend.

Is the Loan and Dividend Proposal contrary to Placard Holding's interests?

41 In this case it is not disputed that increased borrowings will decrease profitability or affect liquidity to the extent of the increased interest expense, that debt will increase resulting in higher leverage and reduced equity and that the amended bank facility terms provide for an increased bullet payment. To this extent, therefore, Mr Korda's views are not directly challenged. The broader question though is whether these consequences mean that the proposals are contrary to Placard Holdings' interests. This is the fundamental point of disagreement.

42 In order to resolve this issue it is necessary to examine the financial analysis prepared by Mr Nunis on the assumption that the proposals are implemented. This financial analysis accompanied the board paper distributed to the board for the 26 August 2015 board meeting. The figures were prepared on two bases. The first, characterised as the 'Base Case', included 'new launch' revenue. The second, characterised as the 'Low Case', excluded 'new launch' revenue.

43 In each case, Mr Nunis prepared comparative annual profit and loss figures for the period 2014 to 2017 and quarterly balance sheet, cash flow, cash assessment and banking covenant assessment figures for the period March 2014 to December 2017.

44 The banking covenant assessment figures include break-even EBITDA and interest cover against the covenanted target. The analysis included an estimate of the break-even exchange rate for Australian currency in US dollars.[35]

45 Without referring to actual figures, which are commercially sensitive, the analysis supports the statement made in the board paper to the effect that Placard Holdings will be able to service the additional debt. Revenue is forecast to remain strong across the four years examined, and despite the increased interest burden the company is forecast to make a significant net profit after tax in each year either on the Base Case or the more conservative Low Case.

46 Likewise, the EBITDA figures are steady for the years ending December 2015 and December 2016 but forecast to increase during the year ending December 2017 on either the Base Case or the Low Case.

47 Break-even EBITDA figures improve significantly over the forecast period from 29 per cent for the year ended December 2015 to 53 per cent for the year ended December 2017 on the Base Case and from 14 per cent for the year ended December 2015 to 37 per cent for the year ended December 2017 on the Low Case.

48 At all times during the forecast period the company will remain within the target debt ratio of 4.5 under the proposed new facility.[36]

49 Mr Nunis gave evidence that the financial analysis was entirely his work. It appears to me to have been done methodically and carefully. In responding to questioning about aspects of the analysis, Mr Nunis demonstrated that he had a sophisticated understanding of the headline elements in the analysis and the underlying integers making up each component. This was particularly evident in relation to the calculation of debt service ratios. He gave his evidence in a clear and confident manner and was highly responsive to questions. He appeared to have a complete understanding of his subject.

50 The financial analysis was not performed in a vacuum. Mr Nunis gave evidence that he was heavily involved in dealings with significant new customers and the renewal of contracts with significant existing customers (including the negotiation of contracts, price and term setting) and that he attends quarterly update meetings with significant customers. Of the 20 significant customer contracts that were in place when Mr Nunis commenced working with the Placard Group on 1 October 2012, 16 such contracts have been renewed (representing 90 per cent of sales revenue) and four have been lost (representing 10 per cent of sales revenue). Since 1 October 2012, seven significant new contracts have been entered into. Mr Nunis considered the possible impact on customers of the proposals in light of the evidence of Mr Ganeshalingam on behalf of KGD that:

Any deterioration in Placard's financial health, including a balance sheet that is geared with a significant amount of debt, has the potential to further adversely impact Placard's business because existing and potential new customers often wish to review or assess the financial accounts to ensure that Placard is in good financial shape so as not to jeopardise their own business...[37]

51 Mr Nunis gave evidence that he did not consider that any of Placard Holdings' customers will either terminate their contracts or elect not to renew their contracts simply as a result of the additional debt; that although a number of key Placard Holdings customer contracts include a clause which allows customers to request information about Placard's financial position, to his knowledge and after making enquiries, he was aware of only three customers requesting to review or assess Placard Holdings' financial statements during his time with the Placard Group. None of these customers had responded with questions or concerns. Two of those customers had recently signed renewals with Placard and negotiations were ongoing with the third such customer.[38] Mr Nunis also gave evidence concerning two significant orders, one from an existing customer, another from a potential new significant customer.

52 It is clear that Mr Nunis has had an impressive record in procuring the renewal of existing contracts (80 per cent renewal rate, 90 per cent by value) and has achieved success in procuring additional new contracts with significant customers. The company also has current prospects for additional sources of revenue.[39]

53 In cross-examination, Mr Nunis agreed that there were significant contracts that had been lost during 2011 and 2012 respectively but said those contracts were lost before he was appointed CEO, although the notification of one of the lost contracts occurred in the same month or the month following his appointment.

54 KGD submits there was no sensitivity analysis performed in relation to the renewal of key contracts or foreign exchange fluctuations and that these factors are major variables in Placard Holdings' EBITDA and essential to an adequate analysis. Accordingly, KGD submits that the financial analysis is deficient.

55 I am not persuaded by this criticism. Sensitivity analyses can be performed in various ways. In both the Base Case and Low Case, Mr Nunis calculated break-even EBITDA figures. These are not precisely the same as a direct sensitivity analysis of non-renewal of key contracts but can be regarded as a higher level analogue. Break-even EBITDA could only be reached by a reduction of 29 per cent (2015), 38 per cent (2016) and 53 per cent (2017). For this to occur it is likely that there would have to be non-renewal of key contracts. Whilst Mr Nunis accepted that he did not know whether particular contracts would be renewed and that the company was sensitive to loss of key contracts, he expressed confidence in contract renewal allowing for the fact that the company was the incumbent contracting party, that they had done a good job and that he understood his competition and the fact that switching costs present difficulties. Mr Nunis referred to a contract renewal schedule which demonstrates that, on balance, the company had renewed most of its contracts. In addition, Mr Nunis expressed confidence about imminent lucrative new opportunities for revenue.

56 The short point is that, even though the company is sensitive to the non-renewal of key contracts, viewed objectively, past performance during the stewardship of Mr Nunis as CEO, as well as prospective opportunities, tend to indicate that the risk of significant non-renewal of key contracts (to the point where the company would breach its banking covenants) must be considered low. Likewise, the break-even exchange rate calculations on the Base Case and the Low Case show that the exchange rate into US dollars for Australian dollars would need to fall very significantly from assumed levels before break-even thresholds were met.

57 Mr Korda based his expert opinion on the forecasts provided by Placard Holdings' management (i.e. the Base Case and Low Case analysis). He noted in his report that this was the only source of forecast financial information he had received and that he adopted the forecasts as presented to him by management as possible representations of the financial position of Placard Holdings should it enter into the Loan and Dividend proposal.[40]

58 For the purposes of giving his report he made an adjustment to the interest expense to reflect the interest payable under the terms of the proposed new banking facility (approximately 5 per cent) rather than the higher interest rate (6 per cent) adopted in the Base Case model.[41]

59 Mr Korda concluded that in his Adjusted Base Case analysis, the higher level of borrowing would give rise to higher debt ratios which were subject to higher interest rate margins than those under the existing banking facilities.[42]

60 Nevertheless, Mr Korda agreed that in all relevant periods, whether under the Adjusted Base Case or the Low Case, Placard Holdings was projected to fall well within the debt covenant specified under the terms of the proposed new facility.

61 In his report, Mr Korda stated that a company's debt ratio is one measurement of a company's leverage and that in his experience a debt ratio of between 2.00 to 2.50 is considered a common level of leverage and suggested that the company is able to pay off its incurred debt within a period of between 2 and 2.5 years.[43] Mr Korda acknowledged that a debt ratio that is higher than 2.00 or 2.50 is not necessarily a problem. Mr Korda also acknowledged that even adopting his rule of thumb debt ratio range of 2.00 to 2.50 the company would be within that range from December 2017 and would be close to that range by December 2016 (2.73).[44]

62 Mr Korda also agreed that even though the interest cover ratios projected under the new banking facility are lower than under the existing facility they are 'still very good and not in any way problematical'.[45]

63 Mr Korda stated that in his experience an interest cover ratio greater than 1.50 is considered a reasonable level of coverage. Under the new facility, on Mr Korda's Adjusted Base Case, the interest cover ratio is in excess of 4 for each of the years 2015 to 2020. This interest cover ratio reflects the fact that the company has an undoubted ability to meet its interest payments with pre-tax income.[46]

64 Mr Korda agreed that the increased bullet payment under the proposed new facility from $26 million to $45 million is not necessarily disadvantageous to Placard Holdings. In preparing his status quo forecast and the financial position of the company, Mr Korda considered it was reasonable to assume that when the loan term expired under the terms of the existing facility the facility would either be extended or refinanced. He made the same assumption with respect to the proposed new facility based on management's assessment in each case that banking facilities would be extended or refinanced such that the bullet payment would not need to be made. Mr Korda accepted that if the view of management is correct, and the new facility would be extended or refinanced such that the bullet payment would not need to be made, then the increase to the bullet payment would not form part of any disadvantage associated with the new facility.

Beneficial effects of the Loan and Dividend Proposal

65 Placard Holdings submits that the Loan and Dividend Proposal is in fact beneficial to Placard Holdings' interests (and therefore to its members as a whole).

66 First, Mr George Georgiadis, investment director of RMB Capital and alternate director of Placard Holdings, made a comparative analysis of the existing banking facility and the proposed new banking facility. Mr Georgiadis gave evidence that the proposed new facility offers significantly more favourable terms for Placard Holdings than the existing banking facilities. In particular, the proposed new facility has lower total amortisation payments meaning that Placard Holdings is not required to repay as much of the borrowed funds prior to the end of the term of the facility, and that there is a lower overall interest rate margin. In this context, the interest rate margin is lower than, or in some cases equal to, the margin on the existing facility for a given leverage ratio range but, significantly, under the new facility the applicable leverage ratio range is determined on a net rather than a gross basis. This means that cash may be offset against debt when calculating the leverage ratio. Placard Holdings submits that a facility based on net leverage will enable Placard Holdings to take advantage of any cash on hand from time to time when calculating the relevant debt ratios. This will put the company into a lower debt ratio, which will have the effect of lowering the effective interest rate margin. Mr Korda agreed that the net approach was beneficial to the company.[47]

67 Further, Mr Georgiadis gave evidence that the proposed new facility has financial covenants that are significantly less strict and require less frequent testing. The proposed new facility also offers more flexibility to Placard Holdings in making distributions, as the leverage ratio governing the amount of permissible distributions is determined by reference to net leverage ratios rather than gross leverage ratios. Mr Georgiadis was not challenged on these observations.[48] I accept Mr Georgiadis' evidence on the comparative benefits of the proposed facility over the existing facility.

68 Secondly, the experts agreed that the cost of equity is typically higher than the cost of debt. Professor Gray of Frontier Economics explained in his report that this is because a debt investment in a particular firm will be less risky than an equity investment in the same firm because the debt holders have the first ranking claim. Mr Korda accepted as a rule of thumb that equity holders will expect a return in the order of 10 per cent to 20 per cent from their investment whereas the interest rate payable on the proposed loan on a pre-tax basis is about 4 to 5 per cent. Mr Korda also accepted that one of the beneficial consequences of the Loan and Dividend Proposal is that by retiring equity, Placard Holdings would no longer be exposed to the potential (all things being equal) of paying out a higher return to equity holders when compared to debt.

69 KGD submits that this expert evidence is too conceptual and was not applied by the experts to the circumstances of the case (i.e. not tailored to the Loan and Dividend Proposal) and should not be given any weight by the Court.

70 In response, Placard Holdings submits that the actual return on equity to the Investors and Management Shareholders is apparent from the Special Purpose Finance Report for the Placard Group for 31 December 2014, which shows the amount of dividends paid. This, Placard Holdings submits, reflects a percentage return on equity within the range that Mr Korda accepted would be expected by equity holders. Placard Holdings submits that one benefit to the company is that it will no longer have the burden of generating the higher level of return for the Investors and Management Shareholders as they will have recouped their investment. Thus, the cost of their equity will be eliminated and replaced by the lower cost of debt.

71 KGD correctly asserts that the experts were not asked to carry out an analysis of the comparative cost of equity and debt in this case nor did they estimate the cost of the return to equity holders on an annual basis to compare like with like. Nevertheless, some indication is apparent from past dividend payments and projected dividend payments. In 2013, the return to preferred shareholders based on the dividend paid in that year was approximately 4.5 per cent. In 2014 and 2015, the return to preferred shareholders exceeded 9 per cent.

72 Projected distributions by the end of September 2016 are substantial. Overall, the figures applicable to Placard Holdings suggest an average annual rate of return exceeding 10 per cent, which is consistent with the underlying proposition that it would be expected that equity holders would receive a higher rate of return than lenders.

73 In these circumstances I do not propose to disregard the expert evidence about the relative costs. It is enough to say that the evidence suggests that replacing equity with debt is likely to be beneficial to Placard Holdings and is not demonstrably contrary to the interests of Placard Holdings or its members as a whole.

74 Thirdly, another benefit of taking on debt when compared to equity accepted by Mr Korda is that the payment of interest attracts the collateral benefit of a tax deduction of approximately 30 per cent, being the current corporate tax rate.[49]

75 Fourthly, Placard Holdings submits that the Loan and Dividend Proposal is beneficial to Placard Holdings because the increased debt will improve its weighted average cost of capital ('WACC'). Mr Korda agreed that the effect of the Loan and Dividend Proposal would be to lower the WACC and that conceptually it was a good thing for Placard Holdings to try to achieve that result. One of the integers in the WACC is the cost of equity. For the reasons given above, the cost of equity over the relevant period in this case was not directly analysed. Accordingly, it is not possible to evaluate the precise extent of any benefit to Placard Holdings' WACC. All I am able to, and do, conclude is that the Loan and Dividend Proposal is likely to lower the company's WACC and is not demonstrably contrary to Placard Holdings' interests or the interests of its members as a whole.

76 Fifthly, Placard Holdings submits that after making allowance for permitted dividend distributions the company's cash position under the proposed new facility would be higher than the cash position under the status quo. Mr Korda agreed that if distributions are paid out in accordance with management forecasts in the months that they projected under the existing facility it would result in there being less cash available to the company than there would be under the new facility. Mr Korda also agreed that the fact that there would be more cash available under the new facility was 'a positive rather than a negative'.[50]

Will there be an adverse effect on the future sale of Placard?

77 KGD submits that if the Loan and Dividend Proposal proceeds it will adversely affect Placard Holdings' ability to sell its business because:

(a) It will be viewed less favourably by prospective purchasers; and

(b) In the period between implementation of the Loan and Dividend Proposal and any future sale Placard Holdings will have been servicing a significantly higher debt.

78 I am not satisfied that there will be an adverse effect of this kind. Mr Nunis gave evidence that companies are sold on a debt-free and a cash-free basis so whether the refinancing proceeded or not made no difference to any valuation of the company. Mr Korda agreed that the usual way in which a sale transaction would take place would be on a debt-free basis; that is the purchaser would buy the company without assuming the obligation to pay the company debts.

79 Furthermore, Mr Hill gave evidence that there was no relationship between the enterprise value of a company and any interest that it paid. Specifically, Mr Hill said:

'When I talk about enterprise value, I'm talking about the price that someone would be prepared to pay for a company, and that's a forward-looking assessment by someone wanting to buy a company. So they'll look at it, they'll look at the historical performance, yes, but they'll form a view as to what this company can generate in terms of cash return in the future. If you're doing it on a debt free basis, then the historical interest that you've paid is not particularly relevant.'[51]

80 In support of the contention of an adverse effect on value KGD relied on an email exchange during April 2015 involving Mr Nunis. In the email an explanation of the concept of dividend recapitalisation was sought. In response, Mr Nunis provided an explanation of dividend recapitalisation including a worked example which showed that the enterprise value remained the same whether the company was sold with or without the additional debt burden.[52]

81 KGD adduced no evidence to the effect that if the Loan and Dividend Proposal proceeded the company would be viewed less favourably by prospective purchasers nor was there any evidence to substantiate the notion alluded to in final submissions that the dividend recapitalisation proposal and its explanation in some way tarnished the commercial negotiations between the relevant parties.

82 KGD relies on some background matters which it submits are a relevant part of the analysis under s 232 or s 254T(1)(b) as they provide a contextual reference against which the proposed conduct, which is sought to be impugned, should be considered.

83 The first of these is the fact that the concept of the Loan and Dividend Proposal was initiated by RMB Capital by its directors, Mr Hildingsson and Mr Summerhayes, who approached Mr Nunis saying they were in discussion with a financial institution about a re-gearing and asked Mr Nunis to develop a financial case to see if the company could comfortably manage a level of debt. This occurred in approximately October 2014.

84 RMB Capital provided the initial draft of the board paper, which was circulated to Mr Summerhayes and Mr Hildingsson for editing and comment. The draft was also copied to Mr Nunis. The banking facility, which was the subject of the Loan Proposal, was negotiated with the relevant bank by RMB Capital directors.

85 KGD submits that the Loan and Dividend Proposal solely advances the commercial interests of the RMB-aligned shareholders (ie the Investors and the Management Shareholders) and that from the outset the RMB-aligned shareholders had been focused on a re-gearing proposal which returned all of their invested capital in the company.[53]

86 I am satisfied that RMB Capital initiated the Loan and Dividend Proposal, provided the initial draft of the board paper relating to the Dividend Proposal and negotiated with financiers regarding the loan facility to be employed for the purpose of the Loan and Dividend Proposal. Mr Nunis conceded as much in cross-examination.

87 For present purposes, I am not concerned with the subjective motivations of the directors of RMB Capital or those acting for the Investors and Management Shareholders. It can be safely assumed that the Investors and Management Shareholders were keen for an early return of all the capital they had invested. The question is whether the involvement of the RMB Capital directors, in initiating the Loan and Dividend Proposal, in drafting the board paper, and in negotiating with the banks with respect to the loan facility is conduct which impinges on the question of whether the Loan and Dividend Proposal is contrary to the interests of members of Placard Holdings as a whole or is oppressive, unfairly prejudicial to or unfairly discriminatory against KGD, and whether the Dividend Proposal is fair and reasonable to Placard Holdings' shareholders as a whole.

88 I am not satisfied that the evidence advances KGD's position in any way on any of these questions. Under the terms of the Shareholders Agreement, Placard Holdings entered into a Management Services Agreement with RMB Capital, which provided that Placard Holdings would engage RMB Capital to provide advice in relation to financial, operational and strategic issues. Mr Georgiadis, Mr Summerhayes and Mr Hildingsson are part of the team at RMB Capital that provides such management services to Placard Holdings as required.[54]

89 Mr Nunis, as CEO of Placard Holdings, gave evidence that he did not consider it unusual that RMB Capital was considering the Loan Proposal without first consulting him in light of the fact that there was a Management Services Agreement in place between the company and RMB Capital for financial and banking matters. Mr Georgiadis gave evidence to the effect that he assisted Mr Nunis and Mr Hildingsson in managing Placard Holdings' relationship with its principal finance provider as part of the provision by RMB Capital of those management services.[55] This evidence was not challenged.

90 It is clear that RMB Capital's idea was taken up by Mr Nunis, but only after he had embarked on his own analysis. He gave evidence as follows:

As a CEO of the company, it is my responsibility to make sure that the company can handle that level of debt. RMB or the directors don't have enough information to be able to make that decision; it's my decision as to whether or not the company can handle that level of debt. As at the date of this meeting [February 2015] I hadn't finished my analysis.[56]

91 In my view, although RMB Capital initiated and progressed the concept of the re-gearing it did so pursuant to the Management Services Agreement. In this case, there is nothing untoward in the fact that the Loan and Dividend Proposal put forward by RMB Capital aligns with its own interests. There is an obvious conflict of interest in that respect, but the conflict is a transparent feature of the Loan and Dividend Proposal. Whether or not the Loan and Dividend Proposal was viable and could proceed is another matter. Critical to the viability of the Loan and Dividend Proposal was the determination by the company's CEO as to whether or not the company could handle the proposed level of debt. From the outset, RMB Capital had asked Mr Nunis to develop a financial case to see if the company could comfortably manage the proposed level of debt. Mr Nunis undertook that task personally to a relatively sophisticated level for the consideration and assessment by the board.

92 It is difficult to see how KGD or Mr Ganeshalingam can legitimately complain about the close involvement of RMB Capital in Placard Holdings' affairs. Each was a signatory to the Shareholders Agreement, which incorporated the Management Services Agreement under which RMB Capital was retained.[57]

93 The second contextual matter is the fact that the Loan and Dividend Proposal was not raised with Mr Ganeshalingam until June 2015. Mr Ganeshalingam gave evidence that the proposals were first raised with him on 10 June 2015 during a phone call between himself and Mr Summerhayes[58] whereas the other directors were aware of the proposals in late 2014. He also states that he did not receive any details of the proposals until receipt of the board paper in the evening of 15 July 2015.[59] KGD submits that the obvious inference from this conduct is that the RMB Capital directors were concerned to ensure that the banking facility was in place and that all other directors of Placard Holdings were 'on-side' with the Loan and Dividend Proposal before Mr Ganeshalingam (and hence KGD) was consulted. KGD submits that by the time Mr Ganeshalingam was informed of the proposal it was, in effect, a fait accompli.

94 In final submissions, KGD submitted that keeping the substantial minority shareholder 'out of the loop until the proposal was finalised' demonstrates an inability to take considerations that KGD might raise into account in assessing the value of the proposal to the company, and a deliberate attempt not to hear from KGD and keep KGD out of those considerations.[60]

95 Mr Nunis gave frank evidence to the effect that Mr Ganeshalingam had typically been difficult to work with, and that until he (Mr Nunis) was confident about his numbers, his assumptions and his conclusions, he did not feel comfortable raising it with Mr Ganeshalingam. He accepted that all other directors knew about the details of the Loan and Dividend Proposal and that it was ready. He agreed that in the circumstances Mr Ganeshalingam had no input into the details of the Loan and Dividend Proposal or the analysis. Mr Nunis said he was waiting for the appropriate time when he was comfortable with his numbers. He said Mr Ganeshalingam had the opportunity to raise questions and ask for any level of detail he wanted about the assumptions underlying the Loan and Dividend Proposal once the details had been sent to him. Mr Nunis said that he himself had not become comfortable with the figures before June 2015.

96 I am not satisfied that anything material turns on Mr Ganeshalingam's earlier non-involvement. The fact that the RMB Capital directors knew of the Loan and Dividend Proposal from the outset and were involved in its development is (at least partly) a function of the fact that RMB Capital was obliged to provide services of this kind to Placard Holdings under the terms of the Management Services Agreement.

97 It is significant that soon after Mr Nunis had completed his financial modelling, the board paper was prepared. When it was distributed on 15 July 2015 to all directors, including Mr Ganeshalingam, it included background material, details of the proposed facility, a snapshot of the financial impact on Placard Holdings and reference to the proposed dividend. The board paper included attached legal advice from Placard Holdings' lawyers, accounting advice from its accountants and draft tax advice, (with the final version of that advice to be distributed once it became available). Recipients were advised that it was intended to put the proposals to the board for approval within 10 days of receipt of the board paper and invited any feedback or comment as soon as possible.[61]

98 In my view, KGD had a reasonable opportunity to examine the Loan and Dividend Proposal and in particular the financial analysis prepared by Mr Nunis.[62]

99 Mr Ganeshalingam (hence KGD) opposed the Loan and Dividend, not because he had insufficient time to properly consider the Loan and Dividend Proposal before it was put to the board but because he disagrees with it for the reasons advanced at the trial. Had the board paper been submitted to the board, Mr Ganeshalingam would have had the opportunity to raise such matters as KGD saw fit, including any challenge to the financial analysis.

100 In my view, there is no intrinsic unfairness, oppression or unreasonableness apparent from the ten day time frame allowed for consideration of the Loan and Dividend Proposal. In some respects Mr Ganeshalingam and the other directors were better placed to consider the Loan and Dividend Proposal on its merits once the financial model had been completed because then they had the benefit of contemporaneous legal, accounting and taxation advice. I am not satisfied that KGD, as minority shareholder, was in any sense oppressed or disadvantaged by not being involved in the formative stages of the Loan and Dividend Proposal. The position may well have been different had KGD not been given a reasonable time to consider the Loan and Dividend Proposal after notice had been given.

101 The third contextual matter is the submission that in investigating the Loan Proposal the RMB-aligned directors only approached two financiers, one being Placard Holdings' existing bank. It was submitted that the terms being offered by the two financiers were fundamentally different and accordingly there was no competitive tension introduced into the process and there appeared to have been no regard as to whether the terms of the loan facility could be improved by approaching other financial institutions. The point was put the following way: that KGD did not know whether better terms could have been achieved because no other financiers were approached.

102 I am not satisfied that any adverse inference can be drawn from this contextual matter. There was no evidence adduced at trial to the effect that another financial institution could have offered better terms. In any event, I do not accept the proposition that there was no competitive tension introduced into the process because the terms being offered by one financier were fundamentally different to the terms being offered by the other. I infer that Placard Holdings' banker did know (though this was not stated expressly) that the company had approached an alternative financier even if the alternative financier's terms were not disclosed. Mr Georgiadis gave evidence that they indicated to the company's bank

really where they needed to be, in terms of terms for us to accept their proposal, and they were able to meet those terms...We pushed Bankwest to a very firm position that in fact we didn't think we would actually be able to achieve, and they came to the table on those terms, so we were very confident we could not get better commercial terms.[63]

103 Mr Nunis gave evidence that he had a strong preference for the company's existing bank over the other financier and that the interest rate being offered by the existing bank was more favourable than the existing facility and he was comfortable with that.

104 In this case I am not prepared to infer anything adverse from the fact that only two financiers were considered by Placard Holdings. There are good reasons why the company might wish to maintain a relationship with its existing financier. This is essentially a management decision. There is no evidence to suppose that Placard Holdings did not procure finance at very favourable rates. There is no evidence that better interest rates could have been procured from another financial institution.

105 The next contextual matter concerns Mr Ganeshalingam's evidence that at no time since the 2012 restructure or during negotiations leading to it did any representatives of the Investors and Management Shareholders or other shareholder or director suggest that a special one-off dividend may be paid from borrowed funds for the purpose of returning to the Investors and the Management Shareholders the sums which they each invested to acquire shares in the company in 2012.[64]

106 Whilst there was no suggestion to Mr Ganeshalingam that a special one-off dividend might be paid from borrowed funds for this purpose since the 2012 restructure, the defendant took issue with the proposition that payment of a special dividend of the type now proposed was not discussed as part of the negotiations in 2011 and 2012.

107 First, the defendant rely on Mr Ganeshalingam's concession in cross-examination that the issue was raised at a conceptual level during negotiations in August and September 2011 that shareholders (whoever they might ultimately be when the deal was done) were going to be able to recoup their investment by way of a borrowing and payment of a special purpose dividend. Mr Ganeshalingam showed some reluctance to agree with the proposition, but ultimately he agreed that the concept was floated and discussed. Mr Ganeshalingam also agreed that as at September 2012 he knew from a memo from his advisor that one quid pro quo for the structure that the parties ultimately entered into (which involved an investment by the Investors and Management Shareholders) was that the Investors and Management Shareholders would look to recoup that investment by way of a special dividend from a proposed recapitalisation.

108 Mr Ganeshalingam did not recall whether he had had any discussions with his advisor about the concept of re-gearing for the purposes of paying a special dividend and could not recall having any further negotiations or discussions with the RMB-aligned parties regarding the suggested quid pro quo. I accept that Mr Ganeshalingam did not remember having any such discussions with his advisor or the RMB-aligned parties, but it is clear from a chain of email correspondence passing between Mr Summerhayes and Mr Ganeshalingam in August 2011 that the concept of re-gearing for the purpose of paying out shareholders a special dividend of an order of magnitude to pay out investors was raised in negotiations.[65] This is also apparent from a revised indicative offer to Placard dated 16 September 2011,[66] a revised indicative offer to Placard dated 10 November 2011,[67] a confidential memorandum from KGD's advisor to Mr Ganeshalingam dated 29 September 2011[68] and an email from KGD's advisor to Mr Summerhayes dated 17 September 2011.[69] This email included the following statement:

With respect to the NBIO you will see that I have strengthened some of the language around the regearing. It could be helpful if there was a binding obligation on the parties to seek to regear to not less than 3x EBITDA assuming milestones and financial thresholds are met and conditional of course on the banks playing ball. At the moment I do not think Ganesh is placing much store on this...

109 Given the numerous references to the concept of re-gearing in these documents for the purpose of paying a special dividend I do not accept the proposition that during negotiations leading to the 2012 restructure no representatives of the RMB-aligned parties or other shareholder or director suggested a special one-off dividend may be paid from borrowed funds for the purpose of returning investor capital.

110 In my view, KGD took an unduly narrow view of negotiations leading to the 2012 restructure by seeking to distance itself from these communications and the final terms of the Shareholders Agreement dated 3 October 2012. KGD submits that because there is no express reference to dividend recapitalisation for the purpose of returning to the Investors and Management Shareholders their invested funds in the final version of the revised indicative offer made to KGD and Mr Ganeshalingam by letter dated 18 March 2012, or in the Shareholders Agreement, the earlier references to such a course in prior negotiations must be disregarded and cannot be considered in determining the issues in this proceeding.[70] I disagree. But in the end nothing of significance turns on this.

111 In my view, what is very significant is that the Shareholders Agreement does not preclude the course being taken and the Constitution of the company permits directors to pay any interim or final dividend that, in their judgment, the financial position of the company justifies from any available source permitted by law.[71] Neither the terms of the Shareholders Agreement nor the power of directors with respect to the payment of dividends set out in the company Constitution is inconsistent with the in-principle discussions in the negotiations leading to the 2012 restructure. Had it been intended to preclude the payment of a special dividend from borrowings to the Investors or Management Shareholders this would have been easily achieved in the Shareholders Agreement or by circumscribing the powers of the directors under the Constitution. It is notable that the Constitution is not in generic form. It makes express reference to the Shareholders Agreement and is obviously tailored for the particular purpose. This makes it all the more likely that adaptions with limiting effect could readily have been made to individual clauses had the parties wanted to limit the circumstances in which A preferred shareholders could receive dividends.

112 The final contextual matter raised by KGD arose from Mr Ganeshalingam's evidence that Placard Holdings operates in a market which is vulnerable to rapid technological developments and his view that Placard Holdings would need to invest in research and development and technological initiatives in the next two to five years or risk losing its ability to compete. Mr Ganeshalingam is concerned that by entering into the Loan and Dividend Proposal Placard Holdings may restrict its ability to invest in, and take advantage of, new technology.[72] I accept Mr Ganeshalingam has legitimate concerns about these matters.

113 On the other hand, it was evident that Mr Nunis is aware of and has considered such issues as the extent of redundancy of plastic cards with magnetic stripes, the imminence of the rapid transition to mobile wallets and the need for back-up by existing technology. Mr Nunis relied on a paper presented at the International Card Manufacturers Association on 30 March 2015 on global card market trends and forecasts over the next five years and an article written by Mr Vrancart on the subject of the longevity of plastic credit cards.[73] It is not necessary to say anything other than to note that the CEO advanced a respectable view that the disruptive effect of technological change is not likely to be instantaneous and that it may take many years before plastic cards will be phased out. Mr Ganeshalingam accepted that this was an area where industry participants might reasonably have different views. Mr Nunis cited one example of a substantial customer which preferred to proceed with the existing technology rather than adopt available new technologies for its systems.

114 Furthermore, Mr Nunis gave evidence which indicated that the management of Placard Holdings is not unaware of, or unresponsive to, technological change; that Placard Holdings had invested in new technologies by obtaining appropriate infrastructure and know how, and had conducted successful trials of new technology with some of its customers but had found that the adoption of the technology is not widespread.[74] Considered as a whole, there is no evidence to suggest that implementation of the Loan and Dividend Proposal would be a serious strategic misstep which would prevent Placard Holdings from adapting to, or investing in, technological change in the relatively near to mid-term.

115 In my view none of the contextual issues raised by KGD, taken individually or together, lend weight to an inference that the payment of the dividend is not fair and reasonable to the company's shareholders as a whole or is contrary to the interests of members as a whole or is oppressive to, unfairly prejudicial to, or unfairly discriminatory against KGD or any other shareholder.

116 Furthermore, the argument that KGD may be responsible for disproportionately more interest costs than its entitlement to distributions under the Loan and Dividend Proposal has no significance. This outcome is merely an artefact of the bargain struck between the parties in the Shareholders Agreement.

117 In my assessment, Mr Ganeshalingam's concern is borne out of a sincere desire to ensure the Placard business continues to prosper and does not become overburdened with debt. Whilst Mr Ganeshalingam was CEO, the group did not have significant borrowings. This approach to the management of the Placard business has changed under the auspices of the new management and CEO and the relatively newly constituted board of Placard Holdings, the successor entity.

118 But this essentially reflects a different management style. The changed management style has potential risks and rewards for shareholders. There is some permissible lopsidedness introduced into the management of the company because the Investors and Management Shareholders are, by reason of the Shareholder Agreement, entitled to a preferential return of their capital through a preferred dividend regime. It is evident that Mr Ganeshalingam expected that the return of capital through that regime would occur progressively by the payment of dividends derived from the company's earnings rather than in a lump sum derived from borrowings. Probably this would be a lower risk strategy for the company. The company would be less highly leveraged, and if there were to be a significant downturn repayment of capital dividends could be deferred.

119 But it does not follow that by adopting a higher risk strategy with the company becoming more leveraged and more susceptible to a significant downturn of business the Loan and Dividend Proposal will provide grounds for an order under s 233 or contravene s 254T of the Act.

120 I have come to the view that that the Loan and Dividend Proposal, viewed objectively, is commercially justifiable and makes due allowance for risk. I am fortified in this view by reason of the fact that Mr Nunis as CEO has demonstrated ability during his incumbency since 2012, which shows every prospect of consolidating and improving the fortunes of the company. Not only has he achieved 90 per cent renewal of contracts by value but, on the balance of probabilities, is likely to secure new business which will exceed current forecasts.[75] The other directors of the company who gave evidence also impressed me as capable notwithstanding their vested interests in the Loan and Dividend Proposal.

121 In the circumstances, I am not satisfied that the Loan and Dividend Proposal is contrary to the interests of the members of the Placard Holdings as a whole within the meaning of s 232(d) of the Act or that the Loan and Dividend Proposal is oppressive to, unfairly prejudicial to or unfairly discriminatory against KGD within the meaning of s 232(e) of the Act. I am satisfied that the Dividend Proposal is fair and reasonable to the company's shareholders as a whole within the meaning of s 254T(1)(b) of the Act in the context of the special regime in place under the Shareholders Agreement.

[1] The background is compiled substantially from the written outlines of the plaintiff and the defendant.

[2] Statement of Claim dated 28 August 2015 ('Statement of Claim'), [2(c)]; Defence dated 11 September 2015 ('Defence'), [2(b)].

[3] Share Sale Agreement, clause 1.1 definitions of company, shares, purchase price; clause 3.1 and 4.1(b), Exhibit D1(Exhibits to the witness statement of Christopher Aloysius Nunis marked CN-1), Tab 8.

[4] The precise amount is confidential between the parties.

[5] Amending Deed-Share Sale Agreement, Clause 4.1(b)(ii), Exhibit D1 (Exhibits to the witness statement of Christopher Aloysius Nunis marked CN-1), Tab 8.

[6] Statement of Claim, [6]; Defence, [6(a)].

[7] Statement of Claim, [5]; Defence, [5].

[8] Shareholders Agreement, clause 10, Court Book ('CB') 346-7.

[9] Statement of Claim, [15]; Defence, [15].

[10] Witness statement of Christopher Aloysius Nunis dated 5 November 2015, Exhibit D2, [60]-[61]; Board paper dated 15 July 2015 with covering email ('board paper'), CB 447.

[11] Witness statement of Christopher Aloysius Nunis dated 5 November 2015, Exhibit D2, [62].

[12] Shareholders Agreement, clause 10.1(a), CB 346.

[18] Shareholders Agreement, Schedule 7, CB 419.

[19] Campbell v Backoffice Investments (2009) 238 CLR 304, 330-331 [59]-[65] (French CJ); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672, 674 [2]-[4] (Spigelman CJ); Solanki v Cufari [2014] VSC 345 [54].

[20] Turnbull v National Roads and Motorists' Association Ltd (2004) 50 ASCR 44, 52 [32], 54 [39]; Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359, 400 [182] (Basten JA); Solanki v Cufari [2014] VSC 345 [56].

[21] [1985] HCA 68; (1985) 180 CLR 459.

[22] Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459, 472.

[23] Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 704.

[24] [2008] VSCA 210.

[25] Joint v Stephens [2008] VSCA 210 [136] citing O'Neill v Phillips [1999] UKHL 24; [1999] 1 WLR 1092, 1098 (Lord Hoffman).

[26] Austin and Ramsay, Ford's Principles of Corporations Law, 13th Ed. [11.450].

[27] HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228; (2012) 88 ACSR 427, 545 [508] (Emmett J); Hunter v Organic & Natural Enterprise Group Pty Ltd (2012) 92 ACSR 183, 206 [107-108].

[28] Turnbull v National Roads and Motorists' Association Ltd (2004) 50 ASCR 44, 52 [32].

[29] Explanatory Memorandum, Corporations Amendment (Corporate Reporting Reform) Bill 2010 (Cth) 21 [3.9].

[30] [2011] VSC 501.

[31] Elkington v CostaExchange Ltd [2011] VSC 501 [59].

[34] Expert Report of Mark Korda dated 9 October 2015 ('KordaMentha report'), CB 107 at 113, [24] and [26]; See also Supplementary Expert Report of Mark Korda dated 26 October 2015, CB 305.

[35] Assessment of Dividend Payment on Banking Covenants and Cash Availability case: Base Case, CB 495; Low Case, CB 498.

[36] See rows regarding Debt ratio - net cf target ratio, CB 495 and 498.

[37] Confidential affidavit of Visvalingam Ganeshalingam affirmed 20 July 2015, Exhibit P2, ('First Ganeshalingam affidavit'), [29].

[38] Witness statement of Christopher Aloysius Nunis dated 5 November 2015, Exhibit D2, [51]-[57].

[39] Supplementary witness statement of Christopher Aloysius Nunis dated 5 November 2015, Exhibit D3.

[40] KordaMentha report, CB 119, [59].

[41] KordaMentha report, CB 119-120, [59], [64]-[66].

[42] KordaMentha report, CB 122, [71].

[43] KordaMentha report, CB 126, [87].

[44] KordaMentha report, CB 121, Table 2. Based on Mr Korda's forecast on the adjusted Base Case the debt ratio would be below 2.5 from December 2017 (2.06) reducing to 0.42 by December 2020.

[45] Transcript 172.8-16; KordaMentha report, CB 127, [93].

[46] KordaMentha report, CB 127, [92]-[93].

[47] Transcript 168.6-26; KordaMentha report, Appendix F (comparison between gross and net debt ratios).

[48] Witness statement of George Christopher Steven Georgiadis dated 6 November 2015, Exhibit D4, [21].

[49] Transcript 178.26-179.2; Independent expert report of Professor Stephen Gray, Frontier Economics, CB 283, [12]; See also an observation to the same effect in the Independent expert accountant's report of Michael Hill dated 23 October 2015 ('McGrathNicol report'), CB 171 at 191, [5.3.6].

[53] Email dated 26 February 2015 from Mark Summerhayes to Magnus Hildingsson cc George Georgiadis, CB 735.

[54] Witness statement of George Christopher Steven Georgiadis dated 6 November 2015, Exhibit D4, [9].

[55] Witness statement of George Christopher Steven Georgiadis dated 6 November 2015, Exhibit D4, [8] and [9].

[57] Shareholders Agreement, CB 429; Schedule 7, CB 417.

[58] First Ganeshalingam affidavit, [37]-[38].

[59] First Ganeshalingam affidavit, [53].

[61] First Ganeshalingam affidavit, Exhibit 'Confidential VG-14'.

[62] Witness statement of Christopher Aloysius Nunis date 5 November 2015, Exhibit D2, [60].

[64] First Ganeshalingam affidavit, [57].

[70] Revised indicative offer dated 18 March 2012, CB 659; Shareholders agreement CB 317.

[71] CB 405-406, Clause 9.1(a) and 9.1(g).

[72] First Ganeshalingam, affidavit,[19]-[26], [65].

[73] Al Vrancart, '2014-2018 Global Market Card Trends & Forecasts - the Next Five Years?'(presentation delivered at the 2015 ICMA Expo, Phoenix, Arizona, 30 March 2015), Exhibit D1 (Exhibits to the witness statement of Christopher Aloysius Nunis marked CN-1), Tab 21; Al Vrancart, 'How long will plastic cards really be around?' (August 2015) Card Manufacturing 12, Exhibit D1 (Exhibits to the witness statement of Christopher Aloysius Nunis marked CN-1), Tab 22.

[74] Witness statement of Christopher Aloysius Nunis dated 5 November 2015, [40(d), (e) and (f)], CB 67.

[75] Supplementary witness statement of Christopher Aloysius Nunis dated 5 November 2015, Exhibit D3.