Sovereign Life Assurance Company v Dodd

13 Mr Oakes submitted that because the partly paid shareholders are being treated equally with the fully paid shareholders, they are not a separate class for scheme of arrangement purposes. The written submissions for the plaintiff supported this proposition with reference to the basis on which the consideration payable in respect of partly paid shares has been calculated and summarised as follows: Detail about the two issues of partly paid shares appears in Section 7.4 of the Scheme Booklet. A summary of that information is that the amount to be paid up on each partly paid share is the "Current Market Price" on the last trading day on which fully paid shares were traded prior to the call on the partly paid shares, less the amount paid on subscription ($0.20). "Current Market Price" is an amount equal to 90% of the last recorded sale price. The consideration payable to the partly-paid shareholders has been calculated as follows: · Bid price $1.67 · Take bid price as last sale price · Apply 90% · 90% x $1.67-$1.50.3; round off to $1.50 · Deduct $0.20 paid on subscription yields call price of $1.30 · From bid price ($1.67) deduct call price ($1.30) yields $0.37. · $0.37 is the scheme consideration payable for each partly paid share. I am satisfied that the above summary is correct. 14 It is not denied that in some respects the position of the partly paid shareholders is different from that of fully paid shareholders. This much is clear simply from the fact that the former are liable to calls whereas the latter are not. Moreover, article 88(3) of the Wattyl constitution provides that whereas fully paid shares carry one vote per share, a partly paid share carries a fractional vote "equivalent to the proportion which the amount paid (not credited) is of the total amounts paid and payable (excluding amounts credited)". 15 It does not follow, however that because different rights attach to partly paid shares holders of these shares are to be treated as a separate class for present purposes. The question is whether at the meeting convened for the purpose of obtaining shareholder approval of the Scheme the interests of the two groups of shareholders are so different "as to make it impossible for them to consult together with a view to their common interest"; Sovereign Life Assurance Company v Dodd [1892] 2 QB 573 at 583 per Bowen LJ. As Barrett J commented in Re Hills Motorway Management Ltd (2002) 43 ACSR 101 at 104: The test is thus not one of identical treatment. It is one of community of interest. The court must ask itself whether the rights and entitlements of the different groups, viewed in the totality of the scheme's context, are so dissimilar as to make it impossible for them to consult together with a view to their common interest. The focus is not on the fact of differentiation but on its effects. The extent and nature of the differentiation must be measured in terms of the effect on the ability to consult together in a common interest or, in other words, the ability to come together in a single meeting and to debate the question of what is good or bad for the constituency as a whole and where the common good lies. Only if the differentiation destroys that ability - the word used by Bowen LJ is "impossible" - does class distinction come to prevail. 16 Where the community of interest to which Barrett J refers is lacking, even identical treatment will not be a sufficient basis for treating different groups of shareholders as being of the same class. The principles governing the distinction between classes are directed to avoiding the unfairness which would result if groups that do not have a community of interest were denied separate meetings in which to consider a proposed scheme of arrangement. The policy underlying those principles would be equally offended by a decision to order a separate meeting in respect of groups which in fact have the requisite community of interest; Application of Australian Co-operative Foods Ltd (2001) 38 ACSR 71 at 88 per Santow J. 17 In this case the issue before both fully paid and partly paid shareholders is whether to consent to Valspar Australia's acquisition of their share at a designated price. Although the price for a fully paid share is greater than for a partly paid share, on a pro rata basis each group would be paid the same in respect of the equity they have in their shares. That being so the issue for all shareholders is the same, namely whether they accept a price that ascribes a certain price to their shares on a basis that is proportionate to the value which each shareholder has in the shares. Although not treated the same, the groups can be seen to be being treated fairly and, in that sense, equally. In any event, I am satisfied that the requisite community of interest exists and that the partly paid shareholders do not form a separate class. 18 The LEA report concludes: On balance, given the above analysis, we consider the acquisition of Wattyl shares by Valspar under the Scheme is fair and reasonable and in the best interests of Wattyl shareholders. As holders of partly paid shares in Wattyl are being treated equally under the Scheme we also consider the acquisition of partly paid Wattyl shares by Valspar under the Scheme is fair and reasonable and in the best interest of Wattyl partly paid shareholders. 19 The balance of the report outlines the valuation methodology used to assess the underlying value of Wattyl and concludes that the offer of $1.67 per fully paid share is above the valuation range determined by the Independent Expert. It also states that the offer of $0.37 for each partly paid share is fair and reasonable. 20 Other evidence before the Court at the first hearing established that the plaintiff is a "Part 5.1 body"; that the proposed Scheme is an "arrangement" within s 411; that Mr Ingram has consented to act as Chairperson of the meetings and Mr Anthony Matthew Dragicevich, Managing Director, Wattyl Limitedhas consented to act in his absence. I am satisfied that the information in the Scheme Booklet and annexed documents will result in proper disclosure to the shareholders. I am also satisfied that the Scheme is bona fide and properly proposed: and that ASIC has been given an opportunity to examine the proposal and adequate notice of the first Court hearing date. The plaintiff has tendered a letter dated 3 August 2010 from ASIC stating that it does not propose to appear at the first Court hearing, or intervene to oppose the Scheme at that time. 21 The factual information in the Scheme Booklet has been verified by affidavits tendered on behalf of Wattyl and Valspar. From Wattyl's perspective the verification process was described by Mr Ingram. Mr Ingram describes the responsibilities of the various participants in the process and the collation of the input from each participant. 22 For Valspar the affidavit of Rolf Engh was tendered. Mr Engh is the Executive Vice-President, General Counsel and Secretary of Valspar. He described the verification process undertaken by Valspar in respect of the information in the Scheme Booklet provided by it. On the basis of the evidence given by Mr Ingram and Mr Engh I am satisfied that both for Valspar and the plaintiff the process was careful and thorough and provides an adequate basis for the deponents' respective assertion that each believes the information in the Scheme Booklet to be correct and not misleading or deceptive. 23 On the basis of the evidence tendered at the first Court hearing and for the reasons given above, I made the order sought by the plaintiff. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.

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