FEDERAL COURT OF AUSTRALIA

Greencross Limited, in the matter of Greencross Limited (No 2) [2019] FCA 117

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff, Greencross Limited, and the holders of fully paid ordinary shares in the capital of Greencross Limited (Scheme), set out in annexure “SBJ6” to the affidavit of Stuart Bruce James affirmed 7 February 2019, be approved.

2.    Pursuant to subsection 411(12) of the Act, the plaintiff be exempt from compliance with s 411(11) of the Act in relation to the Scheme.

3.    These orders be entered forthwith.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

YATES J:

1    On 19 December 2018, the Court made orders (the earlier orders) that the plaintiff, Greencross Limited (Greencross), convene a meeting of its members to consider, and if thought fit agree to (with or without modification), a scheme of arrangement providing for the acquisition by Vermont Aus Pty Ltd (BidCo) of all the shares held by its members in Greencross. The background to, and terms of, the scheme, and certain miscellaneous matters in relation to the scheme, are set out in Greencross Limited, in the matter of Greencross Limited [2018] FCA 2093 (my earlier reasons).

2    The abbreviations used in my earlier reasons are also used in these reasons.

3    The meeting was held on 6 February 2019 and the scheme was agreed to by the statutory majorities required by s 411(4)(a) of the Act. Greencross now seeks an order pursuant to s 411(4)(b) of the Act that the scheme be approved.

4    The following affidavits have been read in support of the present application:

    Robert John Wruck, affirmed 7 February 2019;

    Aaron Lindsay Calder, sworn 7 February 2019;

    Sean Michael Langdon, affirmed 7 February 2019;

    Stuart Bruce James, affirmed 7 February 2019;

    Vincent James Pollaers, sworn 11 February 2019;

    Vincent Wong, affirmed 11 February 2019;

    Lara Bianca Solomons, affirmed 11 February 2019;

    Joel Chase Thickens, affirmed 8 February 2019;

    Michael Andrew LaGatta, affirmed 8 February 2019;

    Ken Nolan Murphy, affirmed 7 February 2019; and

    Simon Leonard Hickey, affirmed 8 February 2019.

5    On the basis of this evidence, I am satisfied of the following matters.

6    First, on 20 December 2018, the explanatory statement, represented by the Scheme Booklet, was registered with ASIC, as required by s 412(6) of the Act. On the same day, the earlier orders were lodged with ASIC, as required by r 3.5 of the Federal Court (Corporations) Rules 2000.

7    Secondly, the Scheme Booklet, the Proxy Form and the Election Form were dispatched to members, substantially in accordance with the earlier orders. The earlier orders required these documents to be dispatched on or before 21 December 2018. This was not done until the next business day, 24 December 2018. Given that the scheme meeting was to be held on 6 February 2019, I do not think that this delay would have prejudiced the Greencross Shareholders in any way. However, the Court should have been informed promptly of any difficulty in complying with its orders and an application to extend time should have been made. This could have been handled expeditiously without the need for a formal hearing. The point to emphasise is that the convening of a scheme meeting is a matter that is under the control of the Court, not the plaintiff: Ecosave Holdings Limited, in the matter of Ecosave Holdings Limited (No 2) [2015] FCA 1446 at [25]. If it is anticipated that, for any reason, the Court’s orders cannot be complied with, or if there has been non-compliance with the Court’s orders, the matter should be brought to the Court’s attention promptly so that remedial measures, if necessary, can be put in place.

8    Thirdly, the scheme meeting was duly convened and held in accordance with the earlier orders. At the meeting, 91.36% of the members present and voting (in person or by proxy) voted in favour of the scheme, with 99.67% of the votes cast in favour of the scheme. As noted in the Scheme Booklet, the votes attached to the Greencross Shares held by companies controlled by Jeffrey David were tagged for the purpose of identifying the effect of voting those particular shares. BidCo and Mr David are associates for the purposes of s 12(2)(c) of the Act. The shares in question represent 3.3% of Greencross’ issued capital. These shares were voted in favour the scheme, representing 4.5% of the total shares voted. Ignoring these votes, the statutory majorities in favour of the scheme would have been attained in any event.

9    The conditions precedent to the scheme (other than Court approval) have been satisfied. This has been confirmed by affidavit evidence and the provision of certificates to that effect, executed as deeds.

10    The hearing of the present application was advertised on 1 February 2019 in accordance with the earlier orders. No person has come forward to oppose the scheme.

11    The only matter of note, which requires further elaboration in these reasons, is the fact that ASIC has declined to provide a statement, pursuant to s 411(17)(b) of the Act, that it has no objection to the scheme. I referred to this possibility at [36] - [37] of my earlier reasons.

12    Section 411(17) provides:

The Court must not approve a compromise or arrangement under this section 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 paragraph (b).

13    The reasons for ASIC’s position are set out in a letter dated 18 December 2018 to the Chairman of Greencross, Mr James. This letter was drawn to my attention before I made the earlier orders. ASIC’s reasons were reiterated in a further letter to Mr James, dated 11 February 2019.

14    Before summarising ASIC’s reasons, it is necessary to recall that the consideration for the shares to be acquired under the scheme is either the Cash Consideration or mixed consideration involving Scrip Consideration. The Scrip Consideration comprises B Class shares issued by BidCo’s holding company, Vermont Aus HoldCo Pty Ltd, itself a proprietary company (HoldCo shares). Greencross Shareholders can elect for the Cash Consideration or the mixed consideration. The mixed consideration is of two types—Mixed Consideration Option 1 or Mixed Consideration Option 2—once again involving an election on the part of the Greencross Shareholders. Those who elect to receive the mixed consideration agree to be registered as the holder of the HoldCo B Class shares and agree to be bound by HoldCo’s Constitution and the HoldCo Shareholders’ Deed. HoldCo can elect that the Scrip Consideration be registered in the name of a custodian nominated by it where the allotment of the Aggregate Scrip Consideration would result in there being more than 50 registered shareholders in HoldCo or, otherwise, with Greencross’ consent. As events have transpired, 41 Greencross Shareholders elected to receive the mixed consideration. Shares such as those comprising the Scrip Consideration are referred to colloquially as “stub” equity.

15    While both the offer of scrip and utilisation of custodian arrangements are legal, ASIC has expressed its concern that the structure of the scheme means that members who once held shares in Greencross are now left with limited rights in a proprietary company (HoldCo) which, by reason of that company type, is subject to a lower standard of governance and disclosure. ASIC considers it important that investors in widely held companies are afforded the safeguards that the law explicitly provides for shareholders of public companies, from which proprietary companies are exempt.

16    However, in the present case ASIC has stated that it does not intend to agitate its concerns in the context of the present scheme and does not propose to intervene on the basis of these public policy concerns. ASIC has taken this stance partly in light of this Court’s decision in Capilano Honey Limited, in the matter of Capilano Honey Limited (No 2) [2018] FCA 1925 (Capilano) and partly because it is taking other steps with a view to addressing, more generally, its public policy concerns. In its letter of 11 February 2019, ASIC noted that the scheme was proposed prior to the issue of ASIC Media Release 18-376MR on 13 December 2018 and that, in accordance with the position set out in that release, it has not exercised its power under s 741 in connection with the scheme.

17    It is to be noted that ASIC’s objection is advanced on general public policy grounds. ASIC does not positively contend that the scheme has been proposed for the purpose of enabling the avoidance of the operation of any of the provisions of Ch 6 of the Act.

18    In Capilano, Farrell J considered a similar objection by ASIC to a scheme involving the issue of so-called “stub” equity. In that case, as in this case, ASIC did not provide a s 411(17)(b) statement. It submitted that if the Court were to approve the scheme in that case, it should do so on conditions that the company issuing the “stub” equity convert to a public company and that the custodian arrangements involved be unwound: see at [70]. Although Farrell J expressed her concern about the use of a proprietary company and custodian arrangements for the scheme transaction, her Honour was not satisfied that, as a matter of fairness, the public policy basis of ASIC’s concerns outweighed the commercial judgment applied by Capilano’s members in agreeing to the scheme: see at [77].

19    Although ASIC has decided not to intervene to agitate its public policy concerns in the present case, I should make clear that, like Farrell J in Capilano, I think that the commercial judgment exercised by the 41 Greencross Shareholders who have elected to receive the mixed consideration—for it is those members for whom ASIC’s policy concerns are apposite in the present case—should be respected and, in this case, given precedence over ASIC’s general concerns. I say this in circumstances where the Scheme Booklet gives prominent attention to, and comprehensive information in relation to, the incidents of holding the B Class shares in HoldCo. Full opportunity has been provided to the Greencross Shareholders to reach an informed decision on this and other aspects of the scheme.

20    This then leaves consideration of the imperative in s 411(17) itself. The cases establish the following propositions:

    Section 411(17)(a) focuses on the purpose for which the “compromise or arrangement” is proposed: Capilano at [59].

    The provision is not directed to future dealings in the shares that comprise the scheme consideration after the scheme is implemented: Capilano at [35] and [57] - [59].

    Whether the specific purpose exists is a question of fact: Re Mincom Ltd (No 3) [2007] QSC 207; (2007) 213 FLR 364 (Mincom) at [46]; Capilano at [37].

    The purpose of those sponsoring the “compromise or arrangement” is as relevant as the purpose of the plaintiff who is proposing the “scheme or arrangement” to its members: Re Stockbridge Ltd (1993) 9 ACSR 637 (Stockbridge) at 653; Capilano at [36].

    The purpose need only be a significant or substantial purpose: Re ACM Gold Ltd (1992) 34 FCR 530 at 538; Stockbridge at 654; Mincom at [42]; Capilano at [36].

    The fact that the scheme has a particular outcome or result does not necessarily mean that it was proposed for the significant or substantial purpose of achieving that result: Capilano at [36].

    Therefore, the mere fact that a “scheme or arrangement” enables a person to avoid the operation of Ch 6 of the Act would not, by itself, prove the existence of the specified purpose: Mincom at [47]; Capilano at [37].

    Inferences of purpose may be drawn, but an inference drawn from the wording or structure of a “compromise or arrangement” is a “weak finding” compared to evidence given by the individuals who constitute the guiding mind and will of a corporation: Mincom at [49]; Capilano at [37].

    The Act provides a choice as to whether transactions might be carried out under Ch 6 or s 411 and is generally “neutral” as to the choice to be made: Re Coles Group Ltd (No 2) [2007] VSC 523; (2007) 65 ACSR 494 at [22]; Capilano at [48].

    The specific intention to avoid the operation of a specific provision of Ch 6 cannot be inferred from the general intention to prefer the procedure under Pt 5.1 of the Act where Pt 5.1 delivers a legal outcome or a legitimate commercial outcome that cannot be achieved under the provisions of Ch 6. In such circumstances, the purpose is not to avoid Ch 6 but to prefer Pt 5.1 generally: Re Russina Mining NL (No 2) [2010] FCA 609; (2010) 78 ACSR 615 at [38]; Capilano at [48].

21    In the present case, evidence has been read which addresses the purpose for using a scheme of arrangement to transact the acquisition of the Greencross Shares. In relation to BidCo and those sponsoring the proposed acquisition, the evidence is that the scheme structure was chosen because it:

    guaranteed the acquisition of 100% of the Greencross Shares;

    was efficient to achieve that end in terms of time, cost and certainty of outcome;

    offered the prospect (which was realised) of securing the unanimous approval of Greencross’ Board and thus was of a “friendly” nature;

    provided for different forms of scheme consideration to be offered;

    provided the ability to complete the acquisition within an agreed timeframe; and

    was a structure that had been used in the past and had, before the expression of ASIC’s present concerns, provided legal certainty.

22    I accept that evidence. I note, further, that the transaction to acquire 100% of the Greencross Shares by a scheme of arrangement involving the use of “stub” equity and custodian arrangements had been finalised and announced to the market on the basis of advice from BidCo’s lawyers before ASIC’s concerns had been made known. The evidence is that, by this time, the explanatory statement was well in the process of being drafted and verified. I am satisfied that it was no part of the thinking of those who constituted the guiding mind and will of BidCo and HoldCo that a scheme of arrangement be utilised to avoid the operation of Ch 6 of the Act.

23    In relation to Greencross, the proposal put to it was one to be implemented by a scheme of arrangement to acquire 100% of the Greencross shares, not some other proposal. I am satisfied on the evidence before me that no other transaction structure was even considered by Greencross because this was the only transaction structure that was offered. At no stage did the Greencross Board consider the possibility of structuring the acquisition as a takeover bid under Ch 6 of the Act.

24    I am satisfied that the present “compromise or arrangement” has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Ch 6 of the Act.

25    Apart from these matters, I am satisfied that the scheme is fair and reasonable, and should be approved. In coming to this conclusion, I have taken into account:

    the nature and terms of the scheme;

    the provisional view I expressed to my earlier reasons (see at [38]);

    the substantial support provided by the members, represented by the high voter turnout (1,320 Greencross Shareholders holding approximately 73.2% of the total number of Greencross Shares on issue) and substantial voting majorities attained in favour of the scheme;

    the recommendation of the directors;

    the expert opinions expressed by Grant Thornton; and

    the fact that no person has come forward to oppose the scheme.

Disposition

26    Orders as sought will be made.

Associate:    

Dated:    15 February 2019