Seymour Whyte Ltd, in the matter of Seymour Whyte Ltd [2017] FCA 1009

FARRELL J: 1 Seymour Whyte Limited (SWL) is a public company which was admitted to the official list of ASX Limited on 31 May 2010. SWL's business is engineering and construction of major infrastructure projects. It employs over 450 employees across projects in Queensland, Western Australia, New South Wales and Victoria. 2 On 23 June 2017, SWL entered into an agreement with VINCI Construction International Network (VCIN) pursuant to which SWL would propose a scheme of arrangement pursuant to s 411 of the Corporations Act 2001 (Cth). Under the scheme, VCIN or its nominee would acquire all of the shares in SWL by way of transfer for cash consideration. VCIN has notified SWL that its Australian incorporated subsidiary, VINCI Construction Australasia Pty Ltd (VCA), would be the acquirer under the proposed scheme. VCA is, indirectly, a wholly owned subsidiary of VINCI Construction SAS, a French construction company with around 67,000 employees in about 100 countries.

Application 3 By originating process filed on 3 August 2017, SWL seeks orders under s 411(1) and directions under s 1319 of the Corporations Act, that: (1) it convene a meeting of SWL shareholders at 10 am on 28 September 2017 in Brisbane (Scheme Meeting) for the purpose of considering (and, if appropriate, agreeing) a resolution to approve a scheme of arrangement between SWL and its members pursuant to which VCA will acquire all of the issued SWL shares (Scheme); and (2) approving an explanatory statement for distribution to SWL shareholders. 4 A draft scheme booklet containing the proposed explanatory statement and scheme of arrangement is attached to the affidavit of Mr John Joseph Kirkwood, a director of SWL. With amendments resulting from issues raised at the hearing, a revised form of scheme booklet is Exhibit 1 in these proceedings (Scheme Booklet). A revised notice to shareholders to be sent electronically is Exhibit 2. 5 On 21 August 2017, I made orders convening the Scheme Meeting and authorising the dispatch of Scheme Booklets to SWL shareholders.

Capital structure 6 As at 16 August 2017, there were 87,976,230 ordinary SWL shares on issue. SWL had a market capitalisation of $120,527,435 (based on a closing share price of $1.37 per share on 15 August 2017). Additionally, there were 405,678 Long Term Incentive Plan (LTIP) options issued in financial year 2015 (forfeited on 17 August 2017), 1,211,871 LTIP options issued in financial year 2016 (performance period 1 July 2015 to 30 June 2018) and 2,272,990 LTIP options issued in financial year 2017 (performance period 1 July 2016 to 30 June 2019). The options confer the right to receive SWL shares subject to vesting conditions which include continued employment following the end of the third year of the vesting period and performance depending on total shareholder return and earnings per share growth over the performance period. 7 Relevantly to some matters below, senior counsel for SWL advised the Court that there are 13 of SWL's 1880 shareholders with addresses outside Australia, representing 78,506 of the 87,976,230 SWL shares or 0.09% of the shares on issue.

Key features of the proposed Scheme 8 If the Scheme is approved by SWL shareholders and the Court, SWL may, in its sole discretion, determine and pay to its shareholders fully franked dividends the total amount of which must not exceed $39,149,423 ($0.455 per SWL share). The directors of SWL are considering paying fully franked dividends of $0.075 (First Special Dividend) and $0.37 (Second Special Dividend) per SWL share (collectively the Scheme Dividends). If the Scheme Dividends are paid, SWL intends to fund the First Special Dividend from its cash reserves and the Second Special Dividend through a loan from VINCI Finance International (VFI): sections 2 and 7.6b of the Scheme Booklet. Following concerns expressed by the Court (see below), the Chairman's letter now discloses that the decision whether to pay either or both of the Scheme Dividends will be advised to SWL shareholders by announcement to the ASX before the second court hearing. 9 The proposed Scheme Consideration is $1.285 for each SWL share less the amount of any Scheme Dividends paid before the Implementation Date of the Scheme (expected to be 23 October 2017). The maximum aggregate amount of the Scheme Consideration is $113 million if no Scheme Dividends are paid. VCA will fund the Scheme Consideration from loans made to it by VCIN and VFI to be made out of their existing cash reserves in proportions which are yet to be determined: section 7.6a of the Scheme Booklet. VFI is a member of the VINCI Group of corporations 10 If SWL's directors determine to pay one or both of the Scheme Dividends, it is proposed that payment would occur on Friday, 13 October 2017 (the Scheme Dividends Payment Date) and the balance of the Scheme Consideration ($0.84 if both Scheme Dividends are paid) would be paid on the Implementation Date. 11 To be entitled to receive each of the Scheme Dividends and the balance of the Scheme Consideration, a shareholder must be on the register at both the "Scheme Dividends Record Date" (expected to be 7 pm Sydney time on Monday, 9 October 2017) and the "Scheme Record Date" (expected to be 7 pm Sydney time on Monday, 16 October 2017). As a practical matter, it should be expected that shareholders will meet this requirement since trading in SWL shares will be suspended from the close of trading on the Effective Date of the Scheme (expected to be Thursday, 5 October 2017) and having regard to the Scheme Dividends Record Date. The Effective Date will be the business day after the Court approves the Scheme, when the Court's order is lodged with the Australian Securities and Investments Commission (ASIC), which is expected to be Thursday, 5 October 2017. The second court hearing is expected to be held on Tuesday, 3 October 2017. 12 SWL has provided loans to certain employees (Employee Loan Shareholders) to assist those employees or their related entities to acquire SWL shares. As at 15 August 2017, there were six Employee Loan Shareholders holding 960,000 SWL shares representing 0.32% of all shareholders and 1.09% of the shares on issue. Employee Loan Shareholders will participate in the Scheme on the same basis as other shareholders. However, any Scheme Dividends or Scheme Consideration to which an Employee Loan Shareholder is entitled will be applied first to payment of the amount outstanding on a loan, with the remaining balance being paid to that shareholder. There is currently a holding lock on shares held by Employee Loan Shareholders which will be released on repayment of the loans. In all cases, the amount to be paid in respect of each SWL share if the Scheme proceeds will exceed the amount owing by each Employee Loan Shareholder. These matters are addressed in the Scheme Booklet at section 3.2c. 13 It is a condition of the Scheme that each holder of LTIP options enters into a binding cancellation deed (or the LTIP options are otherwise cancelled or acquired by VCA on terms satisfactory to VCA). It is proposed that this will occur before the second court hearing for approval of the Scheme. No consideration will be paid for the cancellation of the LTIP options but, subject to the Scheme becoming effective, VINCI Group intends to offer the former LTIP option holders new incentive rights. This matter is discussed at section 7.5 of the Scheme Booklet. 14 The directors of SWL unanimously recommend that shareholders vote to approve the Scheme in the absence of a superior proposal and subject to the independent expert (BDO Corporate Finance (QLD) Ltd) continuing to conclude that the Scheme is in the best interest of SWL shareholders. The directors state their intention to vote shares that they own or control in favour of the Scheme and consider that if the Scheme does not proceed, the market price of SWL shares is likely, at least in the short term, to trade at levels below $1.285 per SWL share: see the Chairman's letter contained in the Scheme Booklet. The Chairman's letter also notes that three major shareholders holding approximately 48% of the SWL shares on issue have advised SWL that they intend to vote in favour of the Scheme subject to the same qualifications as the directors' recommendation. 15 In its report dated 21 August 2017 (IE Report), BDO concluded that the acquisition of SWL shares by VCA under the Scheme is fair, reasonable and in the best interests of shareholders, in the absence of a Superior Proposal. BDO valued SWL shares at between $1.209 and $1.499 per SWL share. The aggregate of the Scheme Consideration and Scheme Dividends (if any are paid) total $1.285 per SWL share, which is within that range. 16 There will be a single meeting of shareholders convened to consider whether to approve the Scheme. This is proposed on the basis that the interests of Employee Loan Shareholders and shareholders who held LTIP options (and therefore will receive replacement incentive arrangements if the Scheme proceeds) are not such as to prevent those shareholders and option holders being able to consult with other shareholders at the Scheme Meeting. 17 Mr Kenneth Macmillan Drysdale (SWL's non-executive chairman) will be chairman of the Scheme Meeting. Failing him, non-executive director Mr Donald John Mackay will act as chairman. Mr Drysdale holds 200,000 SWL shares and Mr Mackay holds 40,000 SWL shares. 18 The current intention is that the existing senior management team, led by Mr John Kirkwood (Managing Director and Chief Executive Officer) will remain in place. Mr Kirkwood currently holds 118,335 SWL shares, 271,371 FY16 LTIP options and 612,528 FY17 LTIP options. As mentioned above, VINCI will offer holders of LTIP option new incentive rights as disclosed in the Scheme Booklet at section 7.5e.

Scheme Dividends 19 Ms Nicola Padget, SWL's chief financial officer has deposed that: (1) the maximum aggregate amounts required to pay the First Special Dividend and the Second Special Dividend respectively are $6,598,217.25 and $32,551,205.10; and (2) as disclosed in SWL's audited consolidated financial results for the financial year to 30 June 2017, SWL has total assets of $144,448,000 of which current assets comprise $102,229,000. SWL has total liabilities of $81,228,000 of which $71,827,000 comprise current liabilities. SWL's net assets are an amount of $63,220,000. 20 Ms Padget deposed that, based on her knowledge of SWL's financial position, she does not believe that the payment of Scheme Dividends will materially prejudice the interests of SWL or its shareholders or SWL's ability to pay its creditors. These matters are relevant to whether the payment of the Scheme Dividends may be authorised by SWL's directors under s 260A(1) of the Corporations Act without shareholder approval. 21 SWL believes that those shareholders who are able to capture the full benefit of a franking credit may realise an additional value of up to $0.19 per SWL share if the Scheme Dividends are paid. SWL has sought a class ruling from the Australian Taxation Office (ATO) concerning the income tax implications of shareholders receiving the Scheme Dividends. There is a general summary of taxation implications for Australian shareholders of SWL prepared by PricewaterhouseCoopers in section 8 of the Scheme Booklet. 22 At 8.3.2 of the IE Report, BDO says: Finally, we note that in some circumstances a shareholder may receive a better after tax outcome for themselves if the consideration were to be paid without the Scheme Dividends. In forming their view on the Proposed Transaction, any shareholder in this position should consider that there is no option proposed within the terms of the Proposed Transaction to receive the share sale consideration without the Scheme Dividends. Price permitting, those shareholders could consider selling their shares on market (refer directly below). 23 The draft scheme booklet annexed to the affidavit of Mr Kirkwood sworn 16 August 2017 stated that the directors of SWL will determine whether or not to pay the Scheme Dividends after assessing the financial condition of SWL and its subsidiaries and the expected impact on creditors at the time of payment. No indication was given as to when that decision would be taken, but it might be inferred that that decision would be taken after the Effective Date of the Scheme. It also stated that SWL expects to receive a final ATO class ruling after the Implementation Date, which is after SWL shares are expected to have ceased to trade on ASX. There was no indication that the directors propose to advise shareholders of the terms of any draft ATO class ruling. The Court was concerned about several issues that follow from these matters: (1) If the decision whether to pay the Scheme Dividends was made after the Effective Date of the Scheme, the Court would be asked to approve the Scheme at the second court hearing without the benefit of an assurance from the directors of SWL that the terms of s 260A of the Corporations Act had been satisfied. The proposed Scheme is not between SWL and its creditors although the payment of the Scheme Dividends may affect their interests. Given the proposed proximity of the second court hearing to the Schemes Dividends Payment Date (10 days), it is difficult to see that the directors' decision could be so finely balanced as to require the decision to be made on the date of payment; if it is so finely balanced, then seeking approval of shareholders would appear to be a better course; (2) Some SWL shareholders may be better off selling their shares on market rather than receiving the Scheme Dividends (as envisaged by BDO's report). However, if the decision whether or not to pay the Scheme Dividends is only made after the Effective Date those shareholders would have no opportunity to deal with their shares in that knowledge; and (3) The terms of the draft ATO class ruling might give shareholders guidance as to whether or not they wish to sell their shares on market or continue to hold them so that they are acquired in the Scheme. 24 These issues might, in significant part, have been addressed if the terms of the Scheme had allowed SWL shareholders to elect between receiving $1.285 as Scheme Consideration or to receive an aggregate of $1.285 in Scheme Dividends and Scheme Consideration for each of their SWL shares. However, that is not a matter for the Court. What is a matter for the Court is the adequacy of disclosure made in the Scheme Booklet which comprises the explanatory statement envisaged by s 411(2). 25 SWL's senior counsel advised the Court that the ATO was reluctant for its draft ruling to be made public. However, having considered the issues raised by the Court, SWL determined to amend the Scheme Booklet: (1) to provide that shareholders would be advised of the status of the ATO ruling at the Scheme Meeting (section 4.2d of the Scheme Booklet); and (2) to state in the Chairman's letter that its decision whether it would pay either or both of the Scheme Dividends would be advised by way of an ASX announcement before the second court hearing. I was satisfied that this addressed the disclosure issue for the purpose of authorising dispatch of the Scheme Booklet.

Treatment of Employee Loan Shareholders 26 I am satisfied that the treatment of the Employee Loan Shareholders, in providing for repayment of employee loans out of the Scheme Consideration and Scheme Dividends before any balance is paid to those shareholders, is fair and not such that it would mean that those shareholders' interests are class creating.

Treatment of holders of LTIP options 27 Subject to any submissions which might be made at the second court hearing, I accept SWL's submission that neither the requirement that the LTIP options be cancelled nor the prospect that LTIP option holders will be issued incentive rights by VINCI as set out at 7.5e of the Scheme Booklet will result in interests which are so dissimilar as to make it impossible for them to consult with other shareholders so as to be class creating.

Performance risk 28 Performance risk in relation to the Scheme has been dealt with in what has become the usual way. On 15 August 2017, VCA (described as "bidder") and VCIN (described as "bidder's guarantor") entered into a Deed Poll for the benefit of SWL shareholders pursuant to which they covenanted, subject to the Scheme becoming effective, to comply with all of their obligations under the scheme implementation agreement, perform the actions attributed to the bidder and the bidder's guarantor under the Scheme and provide the Scheme Consideration in accordance with the Scheme. The Court has been provided with an opinion of an appropriately qualified French lawyer as to the binding nature of the deed on VCIN, subject to the qualifications and assumptions set out in the letter. This opinion is in a common and acceptable form. 29 Under clause 4.2 of the Scheme, SWL shares will not be transferred to VCA until VCA has deposited the Scheme Consideration into a trust account established for the Scheme on the business day prior to the Implementation Date and SWL has paid the Scheme Consideration to shareholders on the Implementation Date.

Exclusivity provisions and break fee 30 The scheme implementation agreement contains exclusivity provisions and provision for a break fee. These matters are described at sections 2, 4.2(e), 4.3(c) and 4.5 of the Scheme Booklet. These provisions require no further comment save to note that the break fee is $1,000,000, less than 1% of the maximum amount of the aggregate Scheme Consideration, and payment of the fee is not triggered if the Scheme is not approved at the Scheme Meeting.

ASIC letter 31 ASIC has provided a letter in relation to the Scheme in the usual form which raises no objection to the orders proposed to at this Court hearing.

Evidence 32 The following affidavits were read: (1) the affidavit of Katrina Anne Sleiman affirmed on 3 August 2017 containing a current organisational extract from ASIC's records indicating that SWL was registered on 10 July 2003. (2) The affidavit of John Joseph Kirkwood affirmed on 16 August 2017 attaching a draft scheme booklet, SWL's Constitution, SWL's annual report for 2016, SWL's half-year report to 31 December 2016, an ASIC search for VCA conducted on 15 August 2017, SWL's ASX announcement made on 26 June 2017 and the scheme implementation agreement, a draft proxy form for the Scheme Meeting, and a draft email to shareholders. I note that a revised form of the draft email to shareholders comprises Exhibit 2. (3) The affidavit of Kenneth Macmillan Drysdale sworn on 16 August 2017 consenting to act as chairman of the Scheme Meeting. (4) The affidavit of Donald John Mackay sworn on 14 August 2017 consenting to act as chairman of the Scheme Meeting if Mr Drysdale is unable to do so. (5) The affidavit of Mark Boylan Whitaker affirmed on 17 August 2017 in relation to the IE Report. (6) The affidavit of James O'Reilly affirmed on 15 August 2017 in relation to the letter of PricewaterhouseCoopers included in the Scheme Booklet at section 8. (7) The affidavit of Julia Margaret Tealby sworn on 16 August 2017 in relation to the verification of the scheme booklet by SWL. (8) The affidavit of Katrina Anne Sleiman affirmed on 17 August 2017 in relation to the proposed terms of the incentive rights which VINCI will offer to LTIP option holders. (9) The affidavit of Nicola Padget affirmed on 18 August 2017 attesting to the matters referred to above and verification of SWL's financial information in the Scheme Booklet. (10) The affidavit of Gilles Godard affirmed on 16 August 2017 as president of VCIN attesting to the verification of bidder information, the Deed Poll and the negotiation of the break fee. (11) The affidavit of Bernard Lenfant affirmed on 18 August 2017 in relation to the execution of the Deed Poll. (12) The affidavit of Patrick Laporte affirmed on 18 August 2017, a qualified French lawyer practising in mergers, acquisitions and corporate law, providing his opinion in relation to the Deed Poll.

Conclusion 33 I am satisfied that SWL is a Part 5.1 body, that the proposed Scheme is a common form of scheme of arrangement between a company and its members, that ASIC was given the required period of notice and had the opportunity to make submissions to the Court should it have wished to do so, and that a Scheme Booklet in the form of Exhibit 1 is appropriate to be dispatched to SWL shareholders. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.