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Woolworths Group Limited v Pinnacle Liquor Group Pty Limited, in the matter of Woolworths Group Limited - [2019] FCA 1810 - FCA 2019 case summary — Zoe
Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act):
(a) there be convened by the first plaintiff a meeting of the shareholders of the first plaintiff, to be held on Monday, 16 December 2019, at the Pyrmont Theatre, International Convention Centre Sydney, 14 Darling Drive, Sydney NSW commencing at 10.00 am, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement (being the applicable scheme of arrangement set forth at tab 2 of Exhibit DM-1 to the affidavit of David Marr affirmed on 30 October 2019 (Scheme)), between the first plaintiff and its shareholders;
(b) there be convened by the second plaintiff a meeting of its member, Woolworths Group Limited ACN 000 014 675, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing at 3.00 pm or as soon after the conclusion of the meeting in Order 1(a) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the second plaintiff and its member;
(c) there be convened by the third plaintiff a meeting of its member, Wine IQ Holdings Pty Ltd ACN 137 590 455, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(b) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the third plaintiff and its member;
(d) there be convened by the fourth plaintiff a meeting of its member, Kennedy Corporation Pty Limited ACN 124 281 278, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(c) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the fourth plaintiff and its member;
(e) there be convened by the fifth plaintiff a meeting of its member, Cellarmaster Wines Pty Limited ACN 076 727 949, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(d) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the fifth plaintiff and its member;
(f) there be convened by the sixth plaintiff a meeting of its member, Woolworths Group Limited ACN 000 014 675, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(e) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the sixth plaintiff and its member;
(g) there be convened by the seventh plaintiff a meeting of its member, Kennedy Corporation Holdings Pty Limited ACN 124 281 269, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(f) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the seventh plaintiff and its member;
(h) there be convened by the eighth plaintiff a meeting of its member, Woolworths Group Limited ACN 000 014 675, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(g) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the eighth plaintiff and its member;
(i) there be convened by the ninth plaintiff a meeting of its member, Wine IQ Holdings Pty Ltd ACN 137 590 455, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(h) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the ninth plaintiff and its member;
(j) there be convened by the tenth plaintiff a meeting of its member, Woolworths Group Limited ACN 000 014 675, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(i) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the tenth plaintiff and its member;
(k) there be convened by the eleventh plaintiff a meeting of its member, Kennedy Corporation Pty Limited ACN 124 281 278, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(j) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the eleventh plaintiff and its member;
(l) there be convened by the twelfth plaintiff a meeting of its member, Kennedy Corporation Pty Limited ACN 124 281 278, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(k) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the twelfth plaintiff and its member;
(m) there be convened by the thirteenth plaintiff a meeting of its member, Wine IQ Holdings Pty Ltd ACN 137 590 455, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(l) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the thirteenth plaintiff and its member;
(n) there be convened by the fourteenth plaintiff a meeting of its member, Cellarmaster Wines Pty Limited ACN 076 727 949, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(m) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the fourteenth plaintiff and its member;
(o) there be convened by the fifteenth plaintiff a meeting of its member, Kennedy Corporation Pty Limited ACN 124 281 278, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(n) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the fifteenth plaintiff and its member; and
(p) there be convened by the sixteenth plaintiff a meeting of its member, Vinpac International Pty Limited ACN 008 266 779, to be held on Monday, 16 December 2019, at the offices of Ashurst at Level 11, 5 Martin Place, Sydney NSW 2000, commencing as soon after the conclusion of the meeting in Order 1(o) above as may be practicable, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed Scheme between the sixteenth plaintiff and its member.
The scheme meetings referred to in order 1 be chaired by:
(a) Mr Gordon Cairns for the meeting in respect of the first plaintiff, or in his absence, Mr Scott Perkins; and
(b) Mr Marcin Firek for the meeting in respect of the second plaintiff, or in his absence, Mr Stephen Harrison; and
(c) Mr David Marr for the meetings in respect of the third to sixteenth plaintiffs, or in his absence:
(i) Mr Stephen Donohue for the meetings in respect of the third, fourth, fifth, ninth, tenth, twelfth, thirteenth, fifteenth and sixteenth plaintiffs; and
(ii) Mr Marcin Firek for the meetings in respect of the sixth, seventh, eighth, eleventh and fourteenth plaintiffs.
The scheme meetings referred to in order 1 shall be held consecutively.
In respect of the meeting referred to in order 1(a):
(a) The Chairman appointed to the scheme meeting has the power to adjourn the scheme meeting in his absolute discretion.
(b) Except for procedural motions, all voting at the scheme meeting be by poll as declared by the Chairman.
(c) The members of the first plaintiff who are eligible to vote at the scheme meeting will be those whose names are recorded in the register of members of the first plaintiff (Woolworths Register) at 7.00pm (AEDT) on Saturday, 14 December 2019.
(d) A proxy or power of attorney to act on behalf of the relevant member must be received by the first plaintiff by no later than 10.00am (AEDT) on Saturday, 14 December 2019.
(e) An appointment of a corporate representative to act on behalf of the relevant member may be delivered at any time before the time of the scheme meeting.
In respect of the meetings referred to in orders 1(b) to 1(p):
(a) The Chairperson of each meeting has the power to adjourn such meeting in their absolute discretion.
(b) The relevant member of each plaintiff company, being a body corporate, may appoint an individual as its representative to exercise the powers it may exercise at the scheme meeting.
(c) A proxy, appointment of a corporate representative, or power of attorney to act on behalf of the relevant member may be delivered to the Chairman of the scheme meeting at any time before the time of the scheme meeting.
(d) A resolution put to the vote at each meeting to approve the proposed Scheme, or any modification to it, must be decided by the member or its representative signing a record of the resolution.
Subject to order 10 below, the following documents are approved for distribution to members of the first plaintiff:
(a) the scheme booklet substantially in the form of the document at tab 7 of Exhibit DM-1; and
(b) the proxy form for the scheme meeting at pages 1,392 to 1,393 at tab 11 of Exhibit DM-1.
(together, the Woolworths Scheme Documents).
Subject to order 10 below, the following documents are approved for distribution to the member of the second plaintiff:
(a) the scheme booklet substantially in the form of the document at tab 8 of Exhibit DM-1; and
(b) the proxy form for the scheme meeting at pages 1,418 to 1,419 at tab 11 of Exhibit DM-1.
Subject to order 10 below, the following documents are approved for distribution to members of the third to fourteenth plaintiffs:
(a) the scheme booklet substantially in the form of the document at tab 9 of Exhibit DM-1; and
(b) the proxy form for the scheme meeting at pages 1,394 to 1,417 at tab 11 of Exhibit DM-1.
Subject to order 10 below, the following documents are approved for distribution to members of the fifteenth to sixteenth plaintiffs:
(a) the scheme booklet substantially in the form of the document at tab 10 of Exhibit DM-1; and
(b) the proxy form for the scheme meeting at pages 1,420 to 1,423 at tab 11 of Exhibit DM-1.
The documents referred to in orders 6 to 9 above be approved for distribution to members of the respective plaintiffs, subject to:
(a) correction of any typographical or grammatical errors and final typesetting and formatting;
(b) any minor amendments required or approved by the Australian Securities and Investments Commission (ASIC) for registration under s 412(6) of the Act;
(c) the correction or update of any relevant date references;
(d) any other amendments approved by the Court; and
(e) registration of the scheme booklets at tabs 7 to 10 of Exhibit DM-1 with ASIC pursuant to s 412(6) of the Act.
Each scheme meeting shall be convened by a notice of meeting, a copy of which forms part of tabs 7, 8, 9 and 10 of Exhibit DM-1 respectively, accompanied by a copy of the applicable explanatory statement.
The Woolworths Scheme Documents referred to in Order 6 above be despatched to members of the first plaintiff, recorded in the Woolworths Register as at 7.00 pm (AEDT), on 3 November 2019, as follows:
(a) in the case of members who have nominated an electronic address for the purpose of receiving communications from the first plaintiff, by email to that address containing a link to a website at which those documents can be accessed. An email substantially in the form of tab 14 of Exhibit DM-1 is approved for this purpose;
(b) in the case of members other than those in paragraph (a) above, with addresses, as recorded in the Woolworths Register, in Australia - by prepaid post to those addresses (including a reply paid envelope addressed to Link Market Services Limited (Link)); and
(c) in the case of those members, other than those in paragraph (a) above, with addresses, as recorded in the Woolworths Register, outside Australia - by prepaid airmail to those addresses (including a self-addressed envelope to Link).
With respect to Order 12 above, if the first plaintiff receives an automatic, system generated notification that the Woolworths Scheme Documents were unable to be delivered to the nominated electronic address of any member to whom Woolworths Scheme Documents were despatched in accordance with Order 12(a) (Undelivered Email Recipients), the Woolworths Scheme Documents be despatched by the first plaintiff to the Undelivered Email Recipients as follows:
(a) in the case of Undelivered Email Recipients whose address as recorded in the Woolworths Register is in Australia, by prepaid post to those addresses (including a reply paid envelope addressed to Link); and
(b) in the case of Undelivered Email Recipients whose address as recorded in the Woolworths Register is outside Australia, by prepaid airmail (including a self-addressed envelope to Link).
Service of each notice of meeting, proxy form and the accompanying explanatory statement in orders 7 to 9 may be effected by hand delivery to a person who is a director, company secretary, corporate representative appointed under s 250D of the Act, or attorney under power, of each member of the applicable plaintiff at any time before the meetings referred to in orders 1(b) to (p) commence.
Rule 2.15 of the Federal Court (Corporations) Rules 2000 shall not apply to the scheme meetings referred to in order 1, except for r 75-15(2) of the Insolvency Practice Rules (Corporations) 2016.
The plaintiffs be relieved of compliance with r 3.4 of the Federal Court (Corporations) Rules 2000 (Cth) in respect of the schemes, subject to the plaintiffs publishing once in The Australian newspaper, on or before 11 December 2019, an advertisement substantially in the form of Annexure A to this order.
The originating process be adjourned to 10.15 am on Thursday, 19 December 2019.
Liberty to restore on two days' notice.
Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice, until further order the document marked Exhibit 1 (being titled "Members' Schemes of Arrangement Property and Liabilities Schedule") be marked "confidential" on the electronic court file, not to be published or accessed by any party other than the parties and their solicitors except pursuant to an order of the Court.
These orders be entered forthwith.
Annexure A
NOTICE OF HEARING TO APPROVE SCHEMES OF ARRANGEMENT
TO all the members and creditors of Woolworths Group Limited ACN 000 014 675 (Woolworths), Cellar Force Pty Ltd ACN 107 876 022 (Cellar Force), Cellarmaster Wines Pty Limited ACN 076 727 949 (Cellarmaster), Endeavour Delivery Pty Limited ACN 003 621 681 (Endeavour Delivery), J Brings Holdings Pty Limited ACN 623 395 915 (JBrings), Kennedy Corporation Holdings Pty Limited ACN 124 281 269 (Kennedy Holdings), Kennedy Corporation Pty Limited ACN 124 281 278 (Kennedy Corporation), Langton's Brokerage Pty Ltd ACN 115 229 199 (Langton's Brokerage), Langtons Pty. Ltd. ACN 133 179 656 (Langtons), SA Professional Bottling Pty Limited ACN 626 332 572 (SA Bottling), V I Packaging Pty Ltd ACN 131 163 927 (V I Packaging), Wine Ark Cellar Club Pty Ltd ACN 087 664 051 (Wine Ark), Wine IQ Holdings Pty Ltd ACN 137 590 455 (Wine IQ), Winemarket Pty Ltd ACN 130 782 919 (Winemarket), Woolworths (South Australia) Pty Limited ACN 007 873 118 (Woolworths (SA)), and ZIMI Wines Pty Ltd ACN 134 617 824 (ZIMI Wines), (together the Scheme Companies).
TAKE NOTICE that at 10.15 am on 19 December 2019, the Federal Court of Australia at Law Courts Building, Queens Square, Sydney, will hear an application by the Scheme Companies seeking the approval of a compromise or arrangement by way of members scheme of arrangement under sections 411 and 413 of the Corporations Act between the above-named Scheme Companies and their respective members (together the Schemes) in the event that a resolution proposing the approval of a compromise or arrangement is passed by the meeting of the respective members of each of the Scheme Companies on 16 December 2019.
The effect of the Schemes is the solvent reorganisation of Woolworths and certain of its subsidiaries such that:
(a) part of the undertaking, property, assets and liabilities, including creditors, of, and any legal proceedings pending by or against, Woolworths relating to the business division of Woolworths known as Endeavour Drinks (Woolworths Drinks Business) will be transferred to Pinnacle Liquor Group Pty Ltd (Pinnacle);
(b) part of the undertaking, property, assets and liabilities, including creditors, of, and any legal proceedings pending by or against, Woolworths SA relating to the Woolworths Drinks Business will be transferred to Pinnacle;
(c) all of the undertaking, property, assets and liabilities, including creditors, of, and any legal proceedings pending by or against, each of Cellar Force, Cellarmaster, Endeavour Delivery, JBrings, Kennedy Holdings, Kennedy Corporation, Langton's Brokerage, Langtons, Wine Ark, Wine IQ, Winemarket and ZIMI Wines (each, a Woolworths (EG Transferor)) will be transferred to Pinnacle;
(d) all of the undertaking, property, assets and liabilities, including creditors, of, and any legal proceedings pending by or against, each of SA Bottling and V I Packaging will be transferred to Vinpac International Pty Limited ACN 008 266 779 (to be a wholly owned subsidiary of Pinnacle); and
(e) each Woolworths (EG Transferor) and each of SA Bottling and V I Packaging will be deregistered by the Australian Securities and Investments Commission without winding up, following implementation of the Schemes.
If you wish to oppose the approval of the Schemes, you must file and serve on the Scheme Companies a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on the Scheme Companies at their address for service at least 1 day before the date fixed for the hearing of the application.
The address for service of the Scheme Companies is: c/o Ashurst Australia, Level 11, 5 Martin Place, Sydney NSW 2000 (Attention: Phil Breden).
Ashurst Australia, Level 11, 5 Martin Place, Sydney NSW 2000
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
[2]
Introduction
1 Woolworths Group Limited is a company incorporated in New South Wales and it is admitted to the official list of ASX Limited (ASX). It had a market capitalisation of $47.9 billion as at 6 September 2019.
2 Woolworths is the ultimate holding company of a corporate group which includes the second to sixteenth plaintiffs and the two defendants (the Woolworths Group). Woolworths operates primarily in Australia and New Zealand across several business portfolios, one of which is known as Endeavour Drinks Group (Woolworths Drinks Business).
3 The Woolworths Drinks Business comprises a number of businesses operating in the retail liquor sector. It includes the following businesses and entities which operate under the following names: Dan Murphy's, the Dan Murphy's Rewards Program (My Dan's), BWS, Cellarmasters, Langton's, Winemarket, Jimmy Brings, Dorrien Estate, Isabel Estate, Vinpac, VI Packaging, Endeavour Delivery, Pinnacle Drinks and Direct; Endeavour X, Endeavour Customer Connections and Endeavour Technology and Supply Chain, Prowine, Chapel Hill, Krondorf, Figtree Cellars and Mac's Liquor. It includes 25% of Southtrade International Pty Ltd. In FY19, the Woolworths Drinks Business generated $5.7 billion of revenue and $296 million of EBIT, before normalisation and pro forma adjustments. These businesses are operated by Woolworths and a number of its subsidiaries.
4 Woolworths also holds a 75% ownership interest in ALH Group Pty Ltd and its subsidiaries (together the ALH Group), which operates a network of licensed venues around Australia, including Dan Murphy's stores, BWS stores and hotels. ALH Group is a joint venture between Woolworths and Bruce Mathieson Group (BMG). BMG holds the remaining 25% of ALH Group. ALH Group was established in 2005 through the merger of: (a) the hotel interests of the Mathieson family; (b) Bruandwo Pty Ltd, a joint-venture of BMG and Woolworths created in 2001 to buy and operate hotels in Queensland; (c) the operations of the Australian Leisure and Hospitality Group which owned and operated hotels and bottle shops in Australia. In FY19 ALH group generated $4.7 billion of revenue and $439 million of EBIT.
5 On 3 July 2019, Woolworths announced its intention to undertake a Restructure by:
(1) Establishing the Endeavour Group through the transfer of assets and liabilities (including some companies) of the Woolworths Drinks Business held by the plaintiffs (scheme companies) to the defendants (transferee companies). This will be achieved primarily by four schemes of arrangement which will require the consent of Woolworths shareholders and the members of the scheme companies (together called the Restructure Scheme). The second defendant, Vinpac International Pty Limited is currently a wholly-owned subsidiary of the seventh defendant, Kennedy Corporation Pty Limited. As part of the Restructure Scheme, Vinpac will become a wholly-owned of the first defendant, Pinnacle Liquor Group Pty Limited (Endeavour); and
(2) The Additional Restructure Steps which are not part of the Restructure Scheme, which will include:
(a) The transfer to Endeavour of Woolworths' 75% shareholding interest in ALH Group and its approximately 8.7% interest in ALE Property Group (which comprises Australian Leisure and Entertainment Property Trust and its controlled entities including ALE Direct Property Trust, ALE Finance Company Pty Limited and Australian Leisure and Entertainment Property Management Limited as the responsible entity of the Trust);
(b) The transfer of assets and liabilities from Woolworths Group entities to Endeavour Group entities with the agreement or consent, where required, of any party holding rights or interests in those assets or liabilities;
(c) Back-to-back arrangements between the Woolworths Group entities and the Endeavour Group entities pursuant to which assets and liabilities may be retained legally by Woolworths Group entities but, in effect, "passed through" such that Endeavour Group entities have the benefit and burden of the rights and obligations of their use and access to the extent relevant to the Woolworths Drinks Business; and
(d) Potentially, re-negotiation of existing agreements with third parties to reflect the new structure under which the Endeavour Group and Woolworths Group are intended to operate as distinct business units.
6 On 3 July 2019, Woolworths and BMG entered into the ALH Share Sale Deed. Under that Deed, following the Restructure, Endeavour will acquire BMG's ownership interest in ALH Group in exchange for a 14.6% interest in Endeavour (ALH merger). ALH Group will then be a wholly owned subsidiary of Endeavour. The ALH merger is conditional upon completion of the Restructure to the satisfaction of Woolworths as well as BMG obtaining certain private rulings from the Australian Taxation Office on terms satisfactory to it. Following the ALH merger, Endeavour (and therefore the Endeavour Group) will be owned as to 85.4% by Woolworths and as to 14.6% by BMG. Either Woolworths or BMG may terminate the ALH Share Sale Deed if the conditions precedent are not satisfied or waived by 30 June 2020. The Restructure is expected to be completed by 28 February 2020. Woolworths is entitled to terminate the Deed at any time before completion if its Board determines that circumstances exist that mean it will not be able to recommend the Restructure to its shareholders; it will then be required to pay BMG a break fee of $10 million as BMG's exclusive remedy for termination of the deed.
7 Woolworths intends to separate from the Endeavour Group through "a de-merger or other value-accretive alternative" the form and timing of which is yet to be determined. It is expected that the separation will take place during 2020. Woolworths intends to seek shareholder approval to the separation at the appropriate time, if it is required.
8 Entities in the Woolworths Group and the Endeavour Group will incur one-off transaction and implementation costs associated with the Restructure totalling approximately $108 million (before tax) and a further $17 million of stamp duty costs associated with the ALH merger. Before the scheme meetings for the Restructure Scheme, Woolworths estimates that it will have incurred or committed transaction costs of approximately $23 million, regardless of whether or not the Restructure is implemented.
[3]
Application
9 By an originating process filed on 14 October 2019, the plaintiffs applied for orders under ss 411(1) and 1319 of the Corporations Act 2001 (Cth) to be made at the first court hearing to convene meetings of their members to consider schemes of arrangement for the purpose of effecting a reconstruction or amalgamation under which assets, property, liabilities and undertakings of each of the scheme companies will be transferred to one of the transferee companies.
10 At the second court hearing, currently listed for 19 December 2019, the plaintiffs will seek the Court's approval of the schemes under s 411(4)(b) and, as necessary, orders ss 411(6), 412 and 413(1) of the Corporations Act.
11 It is useful to note that s 413 of the Corporations Act provides as follows:
413 Provisions for facilitating reconstruction and amalgamation of Part 5.1 bodies
(1) Where an application is made to the Court under this Part for the approval of a compromise or arrangement and it is shown to the Court that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of a Part 5.1 body or Part 5.1 bodies or the amalgamation of 2 or more Part 5.1 bodies and that, under the scheme, the whole or any part of the undertaking or of the property of a body concerned in the scheme (in this section called the transferor body) is to be transferred to a company (in this section called the transferee company), the Court may, either by the order approving the compromise or arrangement or by a later order, provide for all or any of the following matters:
(a) the transfer to the transferee company of the whole or a part of the undertaking and of the property or liabilities of the transferor body;
(b) the allotting or appropriation by the transferee company of shares, debentures, policies or other interests in that company that, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person;
(c) the continuation by or against the transferee company of any legal proceedings pending by or against the transferor body;
(d) if the transferor body is a company - the deregistration by ASIC, without winding up, of the transferor body;
(e) the provision to be made for any persons who, within such time and in such manner as the Court directs, dissent from the compromise or arrangement;
(f) the transfer or allotment of any interest in property to any person concerned in the compromise or arrangement;
(g) such incidental, consequential and supplemental matters as are necessary to ensure that the reconstruction or amalgamation is fully and effectively carried out.
(2) Where an order made under this section provides for the transfer of property or liabilities, then, by virtue of the order, that property is transferred to and vests in, and those liabilities are transferred to and become the liabilities of, the transferee company, free, in the case of any particular property if the order so directs, from any security interest that is, by virtue of the compromise or arrangement, to cease to have effect.
(3) Where an order is made under this section, each body to which the order relates must, within 14 days after the making of the order, lodge with ASIC an office copy of the order.
(4) In this section:
liabilities includes duties of any description, including duties that are of a personal character or are incapable under the general law of being assigned or performed vicariously.
property includes rights and powers of any description, including rights and powers that are of a personal character and are incapable under the general law of being assigned or performed vicariously.
12 Each of the schemes of arrangement comprised in the Restructure Scheme will follow a common form and it is proposed that they be recorded in a single document which is in tab 2 of exhibit DM-1. Each scheme company and its member(s) are set out in the annexure to these reasons. The schemes will be inter-conditional so that if one scheme is not approved, none of them will become effective.
13 If the schemes comprising the Restructure Scheme are implemented, the following will occur:
(1) Part of the undertaking, property, assets and liabilities of Woolworths relating to the Woolworths Drinks Business will be transferred to Endeavour. Woolworths will remain the Australian holding company of the Woolworths Group following implementation of the Restructure Scheme.
(2) That part of the undertaking, property, assets and liabilities of Woolworths South Australia Pty Limited (Woolworths SA) relating to the Woolworths Drinks Business will be transferred to Endeavour. Woolworths SA will remain registered on implementation of the Restructure Scheme and will continue to undertake other activities of the Woolworths Group, principally in South Australia.
(3) All of the undertaking, property, assets and liabilities of the third to fourteenth plaintiffs (Woolworths EG Transferors) will be transferred to Endeavour. The Woolworths EG Transferors will be deregistered following implementation of the Restructure Scheme.
(4) All of the undertaking, property, assets and liabilities of the fifteenth and sixteenth plaintiffs (Woolworths Vinpac Transferors) will be transferred to the second defendant, Vinpac, which will, upon implementation of the schemes, become a wholly-owned subsidiary of Endeavour. The Woolworths Vinpac Transferors will be deregistered following implementation of the Restructure Scheme.
14 It is proposed that there be a separate scheme meeting of each scheme company's member or members to consider and, if thought fit, approve the Restructure Scheme. For Woolworths, this will involve a meeting of its shareholders. For the remaining plaintiffs, the meeting will be of each scheme company's sole member.
15 There are four separate explanatory statements, one for each of Woolworths, Woolworths SA, the Woolworths EG Transferors and the Woolworths Vinpac Transferors. The scheme booklet and notice of meeting for the Woolworths meeting will be despatched to Woolworths shareholders in the conventional manner at least 28 days before the meeting. The scheme booklets for the meetings of the sole members of Woolworths SA, the Woolworths EG Transferors and the Woolworths Vinpac Transferors will be hand delivered to a representative of the sole member before the meetings.
16 It is proposed that the Woolworths scheme meeting will be held on the same day as the Woolworths annual general meeting, which is due to be held on 16 December 2019 at the International Convention Centre Sydney at 10.00 am (AEDT). The other scheme meetings are proposed to be held consecutively on the same day at the Sydney office of Ashurst, Woolworths' legal advisors in relation to the Restructure Scheme.
[4]
Evidence
17 The following affidavits were read and exhibits tendered at the first court hearing:
(1) An affidavit of Philip Andrew Stewart Breden, a partner of Ashurst, sworn on 10 October 2019 supporting the application and giving evidence that the four draft scheme booklet were provided to the Australian Securities & Investments Commission (ASIC) under cover of a letter dated 4 October 2019.
(2) An affidavit of David Paul Marr, the chief operating officer of Woolworths and a director of the third to sixteenth plaintiffs, affirmed on 30 October 2019 and exhibit DM-1. DM-1 contained a copy of Woolworths' announcement to the ASX dated 3 July 2019, the draft Restructure Scheme and the four draft scheme booklets, recently conducted ASIC searches and copies of certificates of incorporation of each of the plaintiffs, draft proxy forms, a pro forma email to Woolworths shareholders pursuant to which the Woolworths scheme booklet and proxy forms will be provided to some shareholders, a letter of advice from Deloitte concerning materiality guidelines, a pro forma letter to be sent to counterparties to material contracts, a verification pack relating to due diligence conducted, and a legal opinion dated 30 October 2019 from Ashurst. Mr Marr also consents to act as chairman of the scheme meetings of the sixth to eighth, eleventh and fourteenth plaintiffs.
(3) An affidavit of Sean Philip Collins, a partner of KPMG and a director and representative of KPMG Financial Advisory Services (Australia) Pty Ltd (together KPMG) to which is exhibited SC-1, being a report dated 30 October 2019 and headed "Creditor Report - Part 5.1 Scheme of Arrangement" (KPMG Report) in relation to the impact on relevant creditors, copies of relevant curriculum vitae and a letter of instructions from Ashurst dated 15 October 2019. In the KPMG Report, KPMG expresses the following opinions:
(a) The Restructure Scheme will not materially prejudice a scheme company or a transferee company's ability to pay its creditors;
(b) Woolworths Drinks Business creditors will not be materially prejudiced by the Restructure and the subsequent ALH merger; and
(c) Creditors of Woolworths' Food & Portfolio Business (which will remain in the Woolworths Group) will not be materially prejudiced by the Restructure and the subsequent ALH merger.
(4) An affidavit of Gordon McKellar Cairns, Woolworths' Chairman, affirmed on 28 October 2019 in which Mr Cairns consents to act as chairman of the Woolworths scheme meeting.
(5) An affidavit of Scott Redvers Perkins, a non-executive director of Woolworths, affirmed on 28 October 2019 in which Mr Perkins consents to act as chairman of the Woolworths scheme meeting if Mr Cairns is unable or unwilling to act in that role.
(6) An affidavit of Marcin Firek, the Company Secretary of Woolworths and a director of the second, sixth to eighth, eleventh and fourteenth plaintiffs, affirmed on 30 October 2019. Mr Firek consents to act as chairman of the Woolworths SA scheme meeting and to be the alternative chairman of the scheme meetings for the sixth to eighth, eleventh and fourteenth plaintiffs if Mr Marr is unable or unwilling to act as chairman of those meetings.
(7) An affidavit of Stephen John Leigh Harrison, the chief financial officer of Woolworths and a director of Woolworths SA, affirmed on 30 October 2019. Mr Harrison consents to act as alternative chairman of Woolworths SA if Mr Firek is unable or unwilling to act in that role.
(8) An affidavit of Stephen James Donohue sworn on 30 October 2019. Mr Donohue is the managing director of the Woolworths Drinks Business (that is, the Endeavour Drinks Group) and a director of the third, fourth, fifth, ninth, tenth, twelfth, thirteenth, fifteenth and sixteenth plaintiffs. Mr Donohue consents to act as the alternative chairman of those plaintiff companies if Mr Marr is unable or unwilling to act in that role.
(9) An affidavit of Philip Andrew Stewart Breden sworn on 31 October 2019. Mr Breden gives evidence concerning his communications with officers of ASIC.
18 Senior counsel tendered a Property and Liabilities Schedule prepared for the purposes of the Restructure Scheme which was marked as exhibit 1. As that schedule is an integral part of identifying the assets and liabilities relating to the Woolworths Drinks Business, it should be tendered into evidence. However the Court accepts that it contains commercially sensitive information. Accordingly, the Court was satisfied, on the ground that it was necessary to prevent prejudice to the proper administration of justice, that orders be made under s 37AF of the Federal Court of Australia Act 1976 (Cth) restricting access to that schedule to the plaintiffs and the defendants and their legal advisors.
[5]
Applicable principles
19 It is well established that an internal corporate reconstruction of the kind contemplated by s 413 of the Corporations Act may be facilitated by one or more members' schemes between the relevant transferring corporate entities and their members, rather than a creditors' scheme, and that the appropriate protection for creditors is that they have the right to appear at a second court hearing and express any concerns as to the appropriate protection of their interests in light of the transfer of obligations arising from the reconstruction: Re Clydesdale Bank Ltd [1950] SC 30 at 37; Re AGL Sydney Limited (1994) 13 ACSR 597 at 598; SGIC Insurance Ltd v Insurance Australia Ltd [2004] FCA 1492; 51 ACSR 470 at [10]-[11]; Stork ICM Australia Pty Ltd v Stork Food Systems Australasia Pty Ltd [2006] FCA 1849 at [69]; AGL Energy Services (Queensland) Pty Ltd v AGL Energy Services Pty Ltd [2010] FCA 452 at [16]-[18]; All Star Funds Management Limited v Ventura Investment Management Ltd [2012] FCA 527 at [4]-[6]; J.P. Morgan Operations Australia Limited v J.P. Morgan Australia Group Pty Limited [2018] FCA 1131 at [31]; Re Anglo-Gaelic Investments Pty Ltd [2019] NSWSC 441 at [26].
20 Having regard to those authorities, which were cited in the submissions filed in this matter, the following propositions should be accepted:
(1) The terms "reconstruction" and "amalgamation" in s 413 have the meaning given in commerce and a restrictive interpretation should not be placed on them.
(2) A reconstruction occurs when, after the transfer, substantially the same undertaking is carried on by the same shareholders, or, if (in an intragroup situation), the ultimate holding company remains the same.
(3) An amalgamation involves the combination of two separate share capital structures into one and it does not matter if the structure of the new share capital (e.g. classes and amounts of shares) does not reflect the structures of the predecessor systems.
(4) The transfer of the assets and liabilities of one or more companies in a corporate group to another company or companies in the same corporate group, with the transferor company being deregistered is within the meaning of a reconstruction and amalgamation under s 413.
(5) The fact that the second to sixteenth plaintiffs have only one member is no obstacle to the Court convening scheme meetings constituted by those sole members, or the Court subsequently approving the schemes proposed between those entities and their sole member.
(6) It remains necessary that the members' scheme embody an element of compromise or arrangement between the scheme company and its member or members in order to enliven the Court's jurisdiction under s 411 of the Corporations Act. However, the element of compromise or arrangement necessary to satisfy s 411 need not be of any great magnitude or significance. It can be satisfied by an agreement by members to the scheme despite diminution in the value of their shareholding or the waiver of any rights the member may otherwise have had in connection with the reconstruction or amalgamation.
(7) Although transferee companies are not parties to the members' schemes, it is now conventional for any transferee companies to be joined as defendants to the proceedings so as to bind them to the schemes, as has been done in this proceeding.
21 The plaintiffs' submissions at [21]-[25] canvassed the approach generally adopted by Courts at a first court hearing where orders are sought under s 411. That approach is well established and conventionally stated in the submissions. It has informed the Court's approach on this application.
[6]
Status of scheme companies and transferee companies
22 As the proposed scheme involves the transfer of property and liabilities under s 413, it is necessary to establish that both that the plaintiffs are Part 5.1 bodies and that each transferee company is a "company" as defined in s 9 of the Corporations Act. The ASIC searches and copies of certificates of incorporation included in DM-1 establish those matters in relation to the plaintiffs. While it appears there are no similar searches for the defendants, the ASIC search in relation to companies for which Mr Firek is a director or company secretary indicates that both of the defendant companies are currently registered and have an Australian Company Number.
[7]
The proposed schemes comprised in the Restructure Scheme are "arrangements" within the meaning of s 411
23 Having regard to the above discussion of the elements of an "arrangement" and "compromise", the Court is satisfied that each of the schemes comprised in the Restructure Scheme are "arrangements" which involve the necessary element of compromise in effecting a restructure to ensure that all of the assets and liabilities of the Woolworths Drinks Business are within the Endeavour Group and leaving any other business within the group comprising Woolworths and its other subsidiaries.
[8]
The scheme booklets will provide proper disclosure to members
24 The Court is satisfied that due diligence process in common form has been undertaken to verify that the information in the scheme booklets is complete and accurate in all material respects.
25 The scheme booklets include a unanimous recommendation from directors that shareholders vote in favour of the schemes comprised in the Restructure Scheme.
26 The Court notes that the KPMG Report is not included in any of the scheme booklets. It is unnecessary for it to be included because it is directed to whether the schemes prejudice the interests of creditors. There was no requirement, in the context of schemes of the nature proposed, to obtain an independent expert's report in relation to whether the schemes are in the best interests of their respective shareholders.
27 In relation to issues surrounding the payment of some employees of the Woolworths Group, all scheme booklets include the following disclosure:
On 30 October 2019 Woolworths announced that a review found that approximately 5,700 salaried store team members working in Woolworths Supermarkets and Metro stores had not been paid in full compliance with Woolworths Group's obligations under the applicable award and committed to fully remediating these shortfalls. Woolworths further announced that it is undertaking a review across all Woolworths Group businesses in Australia to ensure that all relevant award requirements have been met for salaried team members and that the estimated one-off impact of remediation for salaried team member payment shortfalls across all Woolworths Group businesses is currently expected to be in the range of $200-300 million (before tax). Liability in connection with employees that have been transferred as part of the Restructure which arises in relation to this matter will remain with Woolworths Group.
28 Following inquiry from the Court, senior counsel confirmed that the above disclosure was confined to employees of those BWS and Dan Murphy's stores operated by Woolworths. The disclosure did not relate to employees of BWS and Dan Murphy's owned and separately operated by the ALH Group.
[9]
The Restructure Scheme is bona fide and properly proposed
29 Having regard to the background of the Restructure proposal and the information contained in the materials provided to the Court, the Court is satisfied that the Restructure Scheme is bona fide and properly proposed.
[10]
Required engagement with ASIC
30 Annexed to Mr Breden's affidavit sworn on 31 October 2019 is PB-3, which is a copy of a letter from ASIC to Woolworths dated 31 October 2019. In the letter, ASIC says that the requirement to give ASIC at least 14 days' notice of the hearing of an application had been met and that it had a reasonable opportunity to consider the draft explanatory statements (scheme booklets). ASIC also indicated that it did not propose to appear to make submissions or intervene to oppose the Restructure Scheme at the first court hearing. Accordingly, the Court is satisfied that this requirement has been met.
[11]
Procedural requirements
31 The Court is satisfied that all necessary procedural requirements have been met.
[12]
Is there any apparent reason why the schemes should not, in due course, receive the Court's approval if the necessary majority of votes is achieved?
32 The answer to this question is no.
[13]
Creditors
33 The Restructure Scheme, by itself, does not involve the transfer of assets out of the Woolworths Group. However, as the Restructure Scheme involves the transfer of assets and liabilities between members of the Woolworths Group, the interests of creditors may be affected. The KPMG Report is, appropriately, directed to the interests of creditors. It addresses the issue of whether their interests are materially affected by the Restructure Scheme and the ALH merger and concluded that they are not. In formulating the KPMG Report, its authors have taken into account the issue concerning underpayment of employees referred to at [27] above.
34 Creditors are entitled to appear at the second court hearing to object to the Restructure Schemes should they wish to do so and they are advised of that fact in the notice to appear in The Australian newspaper on or before 11 December 2019.
35 At the first court hearing, through senior counsel, Woolworths advised that creditors would be notified about the Restructure Scheme proposal and undertook to include in those notices reference to the availability of the KPMG Report upon request.
[14]
Conclusion
36 For the foregoing reasons, the Court determined to make the orders sought under ss 411 and 1319 of the Corporations Act and s 37AF of the Federal Court of Australia Act.
I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.