Re Mitchell Communication Group (No 2) [2010] VSC 534 (29 October 2010)

1 The applicant, Mitchell Communication Ltd Ltd ("Mitchell"), seeks an order approving the scheme of arrangement that was agreed to by its members at a meeting called for that purpose on 25 October 2010. The scheme, if approved, will give effect to a proposed merger between Mitchell and Aegis Group plc ("Aegis"). The scheme involves the acquisition of all the shares in Mitchell by Aegis.

2 On 17 September 2010 I ordered that Mitchell convene a meeting of its shareholders to consider, and if thought fit, to approve the proposed scheme.[1] The scheme meeting was held on 25 October 2010. On 27 October 2010 Efthim AsJ made orders pursuant to r 16.6 of the Supreme Court (Corporations) Rules 2003 that the meeting was duly convened and held in accordance with the convening orders, save for an irregularity, and that the resolution considered at the meeting was duly passed by a majority in numbers of the members of Mitchell present either in person or by proxy and by more than 75% of the votes cast on the resolution. Efthim AsJ made a declaration that there was an irregularity in the convening of the meeting by sending a proxy form to 52 shareholders by electronic means as they had elected, instead of by post as specified in the convening orders. On 22 October 2010 a notice advertising the second hearing was published in the Australian Financial review, in accordance with the convening orders. The materials sent to shareholders were lodged with ASIC and the scheme booklet was registered. ASIC has stated, for the purposes of s 411(17)(b) of the Corporations Act 2001 (Cth) ("the Act") that it has no objection to the scheme.

3 The implementation of the scheme is conditional upon a number of conditions precedent being satisfied or waived. Those conditions include Court approval of the scheme. Mitchell has provided certificates to the Court in accordance with cl 3.3 of the Merger Implementation Agreement confirming that each condition precedent, other than the Court's approval, have been satisfied.

4 In Re Healthscope Limited[2] I set out the appropriate legal principles to be applied at the second hearing to approve a scheme of arrangement:

The role of the Court in approving a scheme is supervisory in nature. When deciding whether to approve a scheme the Court must consider whether there has been compliance with the Corporations Act 2001 (Cth) ("the Act"), whether the majority of shareholders are acting in good faith in voting in favour of the scheme and whether the scheme is one that is capable of being accepted by shareholders looking to their own commercial advantage. [3]

5 I am satisfied that the order should be made for the reasons that:

(a) the order for approval of the scheme is not opposed by any shareholder or by ASIC;

(b) the scheme is overwhelmingly supported by the shareholders. The requisite majority for the purposes of s 411(4)(a) of the Act was satisfied as 97.17% of the number of shareholders that were present and voting in person or proxy at the scheme meeting voted in favour of the resolution and 99.86% of the votes cast in person and by proxy at the scheme meeting were in favour of the resolution;

(c) the opinion of the independent expert is that the scheme is in the best interests of shareholders;

(d) the scheme has the unanimous recommendation of the board of directors of Mitchell;

(e) Mitchell has received a statement in writing from ASIC under s 411(17)(b) of the Act stating that ASIC has no objection to the scheme;

(g) there is nothing to suggest that the shareholders voted other than in good faith;

(i) the conditions precedent to the merger have been satisfied;

(k) no shareholder has appeared to oppose court approval.

6 In light of these matters and having regard to the matters that I took into account in ordering the convening of the meeting, I am satisfied that it is appropriate to approve the scheme.

7 I also do not consider that the manner in which some shareholders were sent proxy forms is a reason for refusing approval of the scheme as :

(a) the irregularity is confined to the manner in which the proxy form was sent (electronic rather than post);

(b) the form was still sent, and in the manner in which the shareholders had elected;

(c) all other documents, including the scheme booklet, were also sent to those shareholders in hard copy (in accordance with the convening orders);

(d) the number of shareholders and potential votes affected by the irregularity is small - 1.4% of shareholders and 0.64% of votes; and

(e) arguably there was no irregularity if the convening orders are to be construed in conjunction with Mitchell's Constitution and the Act. Section 249J (3)(a)(c) of the Act permits notices of meetings to be sent by electronic means if nominated by the shareholder. I also note that Article 31.4 of the Mitchell Constitution provides that an accidental omission to send a proxy appointment form does not invalidate the proceedings or any resolution passed at the meeting.

8 The Court was also informed that after the shareholder pack was sent out pursuant to the convening orders, 37 shareholders were added to the Mitchell register, representing around 1% of the total shareholders. These shareholders were not required under the convening orders to be sent the shareholders' pack but Mitchell did so in any event on 21 October 2010. No issue arises out of this.

9 Mitchell also seeks an order under s 411(12) of the Act for exemption from compliance with s 411(11) of the Act. In my view such an order is also appropriate. There is no alteration to the Constitution and once the scheme is implemented Mitchell will become a wholly owned subsidiary of Aegis. The scheme will then be of historical interest only.[4] New shareholders will not then be entered on Mitchell's register.

10 Finally, as the merger will affect shareholders who are resident in the United States of America, the Court was informed that Aegis intends to rely on this Court's approval of the scheme and s 3(a)(10) of the Securities Act of 1933 (US) to obtain exemption from the registration requirements of the United States securities legislation in respect of the Aegis shares that it issues to Mitchell shareholders on the implementation of the Scheme. Notification to the Court on whose order the proposed issuer intends to rely is a requirement for exemption.[5] That notification should be formally recorded in the form of orders.

11 Orders will be made in accordance with the proposed minutes of orders handed up today.

[1] Re Mitchell Communication Group [2010] VSC 423 (Unreported, Davies J, 17 September 2010); see also Re Healthscope Limited [2010] VSC 367 (Unreported, Davies J, 3 September 2010).

[2] [2010] VSC 440 (Unreported, Davies J, 24 September 2010).

[3] Ibid [5]; see also Re Coles Group Limited (No. 2) [2007] VSC 523; (2007) 65 ACSR 494 [24], [33], [47] - [65], [68], [71] - [72], [77]; Re Lonsdale Financial Group Limited (No. 2) [2007] VSC 525 (Unreported, Robson J, 17 December 2007) [21]; Re IWL Limited [2007] VSC 530 (Unreported, Robson J, 17 December 2007) [7]; Re Mitre 10 Limited [2010] VSC 100 (Unreported, Robson J, 17 March 2010) [15]; Re Rusina Mining NL (No. 2) (2010) 78 ACSR 609 [39] - [40]; Re Lion Selection [2009] VSC 546 (Unreported, Judd J, 3 December 2009) [20] - [22].

[4] Re Lion Selection [2009] VSC 546 (Unreported, Judd J, 3 December 2009) [23] - [24]; Re Cytopia (No. 2) [2010] VSC 4 (Unreported, Croft J, 15 January 2010) [19] - [20]; Re GRD Limited [2009] FCA 1595 (Unreported, Gilmour J, 24 December 2009) [36] - [38].

[5] Cf Re Solution 6 Holdings Ltd (2004) 50 ASCR 113, 118-20.