PSC Insurance Group Limited, in the matter of PSC Insurance Group Limited (No 2) [2024] FCA 1153

Federal Court of Australia|2024-10-01|Before: Mr P, Neskovcin J

THE COURT NOTES THAT: A. This proceeding concerns a scheme of arrangement between the plaintiff and its shareholders, the terms of which are set out at Annexure A to these orders (Scheme). B. There has been produced to the Court a statement in writing by the Australian Securities and Investments Commission (ASIC) in accordance with s 411(17)(b) of the Corporations Act 2001 (Cth) stating that ASIC has no objection to the Scheme. THE COURT ORDERS THAT:

Pursuant to s 411(4)(b) of the Corporations Act, the Scheme be and is hereby approved.
The plaintiff lodge a copy of the Scheme with ASIC at the time of lodging an office copy of these orders under s 411(10) of the Corporations Act.
Pursuant to s 411(12) of the Corporations Act, the plaintiff is exempted from compliance with s 411(11) of the Corporations Act in respect of the Scheme. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. Annexure A Scheme [The Order entered is available on the Commonwealth Courts Portal, which attaches the Scheme.] REASONS FOR JUDGMENT NESKOVCIN J:

The Scheme 5 The purpose of the Scheme is for an entity wholly owned by The Ardonagh Group to acquire all of the issued ordinary shares in PSC. The Scheme Consideration to be provided for the acquisition of all of the issued PSC shares is of two kinds: General Shareholders will receive Cash Consideration of A$6.19 per PSC share, and Rollover Shareholders will receive non-voting 'D' shares in entities owned by Ardonagh in exchange for some of their PSC shares and the Cash Consideration of A$6.19 per share for the balance of their PSC shares. Under the Scheme, the General Shareholders and Rollover Shareholders are treated as separate shareholder classes and each shareholder class is required to vote to approve the Scheme at separate Scheme meetings.

The evidence 6 At the second court hearing, PSC relied on the following affidavits: (a) an affidavit dated 30 September 2024 of Ms Catherine Merity (First Merity Affidavit) addressing the lodgement of documents with ASIC, dispatch of the Scheme Booklet to and other communications with PSC Shareholders and correspondence with ASIC in respect of its statement of no objection pursuant to s 411(17) of the Corporations Act; (b) an affidavit dated 30 September 2024 of Mr Jim Kompogiorgas, Senior Client Relationship Manager at Link Market Services, which was engaged to assist PSC in the convening and conduct of the Scheme Meetings, including the dispatch of materials to PSC shareholders; (c) an affidavit dated 30 September 2024 of Mr Paul Dwyer, the Non-Executive Chairman of PSC and the Chairperson of the Scheme Meetings (Dwyer Affidavit), regarding the conduct of the Scheme Meetings held on 26 September 2024; and (d) a further affidavit dated 1 October 2024 of Ms Merity (Second Merity Affidavit) exhibiting a copy of ASIC's statement that it has no objection to the Scheme pursuant to s 411(17) of the Act and a certificate regarding the conditions precedent to the Scheme. 7 The bidder, Rosedale BidCo, appeared at the second court hearing and supported the orders sought by PSC. 8 No shareholder in PSC sought to appear to oppose approval of the Scheme.

Relevant principles 9 Section 411(4) of the Corporations Act provides that a scheme of arrangement is binding if (relevantly): (a) at a meeting of members, the arrangement is passed by a majority in number of the members present and voting (either in person or by proxy) and by 75% of the votes cast on the resolution; and (b) the arrangement is approved by order of the Court. 10 Section 411(5)(b) of the Corporations Act provides that where the Court orders two or more meetings of classes of members in respect of a proposed arrangement, the meetings are, for the purposes of subsection (4), taken together to constitute a single meeting and the votes in favour of the proposed arrangement cast at each of the meetings are to be aggregated, and the votes against the arrangement cast at each of the meetings are to be aggregated, accordingly. 11 The Court's task at the second court hearing is to ensure that the statutory and procedural requirements in relation to the convening and conduct of the relevant meetings have been observed and to determine, in the exercise of the Court's discretion pursuant to s 411(4)(b) of the Corporations Act, whether to approve the Scheme. 12 The matters to which regard will ordinarily be had in deciding whether to approve a scheme of arrangement are that: (a) the orders of the Court convening a meeting of members were complied with; (b) the meeting of members so convened has approved the scheme with the requisite majorities; (c) all other statutory requirements have been satisfied; (d) the scheme is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it; (e) there has been full and fair disclosure to members and creditors of all information material to the decision whether to vote for or against the scheme; and (f) the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion. See Re Amcor Ltd (No 2) [2019] FCA 842 at [7]-[11] (Beach J); Re Australia and New Zealand Banking Group Ltd (No 2) [2022] FCA 1547 (Re ANZ) at [10] (O'Bryan J); Re Costa Group Holdings Limited [2024] FCA 59 at [14] (O'Callaghan J); Re Probiotec Limited (No 2) [2024] FCA 593 at [8] (Button J).

Compliance with Court orders 13 The method of dispatch of the Scheme Booklet required by the First Hearing Orders was as follows: (a) to the Scheme Shareholders described in the orders as 'General Email Shareholders', PSC was to send an email containing links to a website to view and download the Scheme Booklet, access their personalised proxy form, and lodge proxy instructions in relation to their shareholding for the General Scheme Meeting online; (b) to the Scheme Shareholders described in the orders as 'Rollover Email Shareholders', PSC was to send a link to view and download the Scheme Booklet and a non-personalised proxy form; (c) to the Scheme Shareholders described in the orders as 'Postal Recipients', PSC was to send by pre-paid post or pre-paid airmail a physical copy of the Scheme Booklet, a personalised proxy form, and a reply-paid envelope for the return of the proxy form; and (d) to the Scheme Shareholders who had not provided an email address, or for the 'Email Shareholders' for whom an electronic notification was received that the email could not be delivered, PSC was to send a pro-forma letter containing links to PSC's website to view and download the Scheme Booklet, a personalised proxy form, and a reply-paid envelope for the return of the proxy form. 14 The First Merity Affidavit confirmed that the Scheme Booklet was dispatched in accordance with the First Hearing Orders. 15 On the basis of the evidence relied on at the second court hearing, I am satisfied that the Scheme materials, including the Scheme Booklet, were effectively dispatched to Scheme Shareholders. Further, the Scheme Booklet, including the modifications raised at the first court hearing, was registered with ASIC on 22 August 2024.

Conduct and results of the Scheme Meetings 16 The Scheme Meetings were held on 26 September 2024 and took place in a hybrid format involving a physical meeting at the Pullman Melbourne on the Park Hotel, East Melbourne, and a virtual meeting. Mr Dwyer, Non-Executive Chairman of PSC, was the Chairperson of the Scheme Meetings.

General Scheme Meeting 17 As stated in the Dwyer Affidavit, 97.02% of General Shareholders present and voting (in person or by proxy) (being 488 shareholders representing 120,149,266 shares) voted in favour of the General Scheme, 2.98% (being 15 shareholders representing 18,791 shares) voted against, and 0% (being 0 shareholders representing 0 shares) abstained. This represented 33.00% of PSC's issued share capital who voted in favour and 0.01% who voted against.

Rollover Scheme Meeting 18 As stated in the Dwyer Affidavit, 100% of Rollover Shareholders present and voting (in person or by proxy) (being 11 shareholders representing 146,129,155 shares) voted in favour of the Rollover Scheme. This represented 40.1% of PSC's issued share capital.

Voter Turnout 19 In total, 266,297,212 PSC shares, held by 514 shareholders, voted in respect of the Scheme. This represented a participation rate of 21.36% of PSC shareholders, and 73.14% of the PSC shares on issue, which exceeded the participation rate of 6.61% at PSC's Annual General Meetings in 2022 and 2023. 20 Accordingly, the Scheme was passed by a majority in number of members present and voting, and by 75% of the votes cast at the Scheme Meetings, and the voting majorities required by s 411(4)(a)(ii) of the Act were achieved. 21 The First Merity Affidavit exhibited an announcement, issued on the ASX platform on 26 September 2024 (ASX Announcement), that the Scheme was approved by the requisite majorities at the Scheme Meetings. 22 I am satisfied that the Scheme Meetings were properly convened and conducted in accordance with the First Hearing Orders and that the statutory requirements have been complied with, save to the extent that they were dispensed with under the First Hearing Orders, or by the orders made approving the Scheme.

Notice of second court hearing 23 By the First Hearing Orders, the Court dispensed with the requirement for compliance with rr 2.4(1), 2.15, and 3.4 of the Federal Court Rules 2011 (Cth) (see PSC No 1 at [59]-[60]) and directed that notice of the second court hearing be published on PSC's website and via an ASX Announcement on or before 25 September 2024. 24 The First Merity affidavit evidenced compliance with this requirement, including by exhibiting a copy of an ASX announcement dated 23 September 2024.

Satisfaction of conditions precedent 25 In advance of the second court hearing, a certificate in relation to conditions precedent to the Scheme was provided as an exhibit to the Second Merity Affidavit. The certificate was signed by PSC and, on the bidder side, by BidCo. The certificate attested that all conditions precedent to the Scheme had been satisfied or waived (other than conditions relating to Court approval of the Scheme).

Full and fair disclosure to members 26 Having regard to its contents, I accepted at the first court hearing that the draft Scheme Booklet (as amended) was a draft explanatory statement satisfying the criteria specified in s 412(1) of the Act: see PSC No 1 at [47]-[49]. 27 The finalised Scheme Booklet was distributed to Scheme Shareholders in accordance with the First Hearing Orders. 28 I am satisfied that the disclosure requirements imposed by s 412(1) of the Act have been satisfied, and that there has been full and fair disclosure of all material information.

Is the Scheme fair and reasonable? 29 Once satisfied that all statutory and procedural requirements in relation to the convening and conduct of the meetings have been observed, the Court has a discretion to approve the Scheme pursuant to s 411(4)(b): Re Costa at [11] (O'Callaghan J). 30 Before approving a scheme, the Court must consider "whether the scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it": Re Amcor at [7] (Beach J); see also Re ANZ at [36] (O'Bryan J). 31 Where there is no opposition to the order for approval of the Scheme, the commercial judgment of the scheme shareholders is particularly relevant and considerable weight should be given to the commercial judgement of those who voted to approve the scheme: Re Amcor at [11] (Beach J); Re ANZ at [36] (O'Bryan J); Re Clemenger Group Ltd (No 2) [2023] FCA 974 at [22] (Button J). 32 Where a scheme is proposed and attracts the requisite statutory majorities, that stands as evidence of a scheme's apparent fairness and reasonableness: Re Amcor at [11] (Beach J); Re Clemenger at [22]-[23] (Button J). 33 PSC submitted that the Scheme is fair and reasonable in the sense that an intelligent and honest shareholder, properly informed and acting alone, might approve the Scheme. I accept that submission. In that regard, the following matters as submitted by PSC are relevant: (a) the Scheme contains measures to protect shareholders against performance risk; (b) the Independent Expert expressed their opinion that the Scheme (insofar as the Cash Consideration is concerned) was fair and reasonable and in the best interests of Scheme shareholders; (c) the high level of attendance by PSC Shareholders at the Scheme Meetings; (d) there has been no application by any shareholder to oppose approval of the Scheme; and (e) ASIC has provided a no objection statement pursuant to s 411(17) of the Corporations Act.

Whether all necessary matters have been brought to the attention of the Court 34 There was no indication that there were any additional matters relevant to the exercise of the Court's discretion that ought to have been, but were not, brought to the attention of the Court by PSC.

Section 411(17) 35 Section 411(17) of the Corporations Act provides that the Court must not approve a compromise or arrangement unless: (a) it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6; or (b) there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement, but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in sub-paragraph (b). 36 There was no evidence before the Court to suggest that the Scheme was proposed to avoid the operation of Chapter 6 of the Corporations Act. 37 The Second Merity Affidavit exhibited a letter from ASIC dated 30 September 2024, issued pursuant to s 411(17)(b) of the Corporations Act, stating that ASIC had no objection to the Scheme. The requirement in s 411(17)(b) of the Corporations Act has therefore been satisfied.

Exemption from s 411(11) 38 PSC sought an order under s 411(12) of the Corporations Act, exempting it from compliance with s 411(11) of the Corporations Act in relation to the Scheme. 39 Section 411(11) of the Corporations Act provides: Subject to subsection (12), a copy of every order of the Court made for the purposes of paragraphs (4)(b) must be annexed to every copy of the constitution of the body issued after the order has been made. 40 The purpose of s 411(11) is to ensure that any modification of the rights of shareholders that may affect interests of persons dealing with the company, such as prospective creditors or purchasers of shares, will have the opportunity of seeing what the exact rights of shareholders in the company, or its creditors, are, as modified by the scheme: Re Equinox Resources Ltd (2004) 49 ACSR 692; [2004] WASC 143 at [22] (EM Heenan J), cited with approval in a number of cases including Re Clemenger at [31] (Button J), Re iSelect Ltd (No 2) (2022) 166 ACSR 41; [2022] FCA 1528 at [52]-[53] (Anderson J) and Re Costa at [33] (O'Callaghan J). 41 PSC submitted, and I accept, that it is appropriate to exempt it from compliance with s 411(11) in the present circumstances because: the Scheme will not alter the constitution of PSC or the rights of its members or creditors or other persons dealing with the company; no ongoing purpose would be served by requiring the orders approving the Scheme to be annexed to its constitution; and immediately following implementation of the Scheme, PSC will be a wholly owned subsidiary of the Ardonagh Group, which is well aware of the Scheme.

CONCLUSION 42 For the foregoing reasons, I made the orders approving the Scheme. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Neskovcin.

Corporations Act 2001(Cth)ss 411(a)(ii), 411(4)(b), 411(5)(b), 411(10), 411(11), 411(12), 411(17)(b)

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