FEDERAL COURT OF AUSTRALIA

People Telecom Limited, in the matter of People Telecom Limited [2009] FCA 180

CORPORATIONS – application to convene scheme meeting and approve explanatory statement – maximum break fee payable in excess of Takeover Panel’s one percent guideline – break fee not excessive in the circumstances – provision in proxy deeds for shareholders who have committed themselves in favour of voting for transaction – application approved

Corporations Act 2001 (Cth) – ss 411(1), 1319

Corporations Regulations 2001 (Cth)

Federal Court (Corporations) Rules 2000 – rules 2.15, 3.4(3)(b)

Re APN News & Media Ltd (2007) 62 ACSR 400 referred to

Re SFE Corporation Limited [2006] FCA 670 referred to

PEOPLE TELECOM LIMITED (ACN 009 273 152)

NSD 138 of 2009

JACOBSON J

25 FEBRUARY 2009

SYDNEY

THE COURT ORDERS THAT:

1.                  Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (Corporations Act), that the Plaintiff convene a meeting (Shareholders’ Meeting) of its members holding ordinary shares, other than the holders of Excluded Shares in respect of those Excluded Shares (Shareholders), for the purpose of considering, and if thought fit, approving (with or without modification), a scheme of arrangement proposed to be made between the Plaintiff and its Shareholders (Scheme), being substantially in the form of Exhibit B in the proceeding.

2.                  In Order 1, Excluded Shares has the meaning in the Scheme.

3.                  Pursuant to section 411(1) of the Corporations Act, that the Scheme Booklet be approved for distribution to Shareholders.

4.                  The Shareholders’ Meeting take place at the offices of the Plaintiff at the People Telecom Centre, 76 Berry St, North Sydney, New South Wales at 10am on 6 April 2009.

5.                  Barry John Hamilton, or failing him Stephe Wilks, be appointed and act as Chairman of the Shareholders’ Meeting.

6.                  The Chairman of the Shareholders’ Meeting have the power to adjourn the Shareholders’ Meeting in his absolute discretion.

7.                  All voting at the Shareholders’ Meeting be by poll as declared by the Chairman.

8.                  The Plaintiff place a notice of the hearing of the application to approve the Scheme in The Australian newspaper on or before 7 April 2009, such notice to be substantially in the form of Form 6 of the Federal Court (Corporations) Rules 2000.

9.                  The Plaintiff be given leave to truncate the notice period required by Rule 3.4 (3)(b) of the Federal Court (Corporations Rules) 2000.

10.              The proceeding be stood over to 9 April 2009 at 9.30 am before Justice Jacobson for the hearing of any application to approve the Scheme.

11.              Pursuant to section 1319 of the Corporations Act, and Rule 2.15 of the Federal Court (Corporations) Rules 2000, the Plaintiff be exempted from compliance with the requirements of Regulations 5.6.12 to 5.6.36A of the Corporations Regulations 2001, save that Regulation 5.6.13 shall apply.

12.              There be liberty to apply.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                                             This is the first court hearing of an application to approve a scheme of arrangement.  Accordingly, the principal orders which are sought at this hearing are orders under section 411(1) of the Corporations Act 2001 (Cth) (“the Act”), that the plaintiff convene a meeting of members of the company and an order approving the explanatory statement for distribution to shareholders. 

2                                             The scheme is an acquisition scheme between the plaintiff, People Telecom Limited (“People”), and its members, under which all of the issued capital of People will be acquired by M2 Telecommunications Group Ltd (“M2”) via its subsidiary M2 Telecommunications Pty Ltd.  The details of the scheme and the relevant principles and other matters are fully set out in written submissions provided to me by Senior Counsel for People. In accordance with the usual practice, I have marked the submissions as MFI-1.

3                                             Mr Oakes has taken me in some detail this afternoon through the scheme booklet and the evidence in support of the application.  There are two matters in respect of which disclosure is made in Mr Oakes’ written submissions.  The first is that there is a break fee of up to $300,000 payable by People in the circumstances set forth in the Scheme Booklet.  The maximum break fee that may be payable is in excess of the one percent guidelines referred to in the Takeovers Panel Guidance Note.  However, the directors approved the break fee figure for a number of reasons which I shall refer to briefly.

4                                             The details of the break fee are addressed in the affidavit of Mr Barry John Hamilton, who is the non-executive Chairman of People.  Importantly, the break fee is not payable if the proposed scheme is not approved by the shareholders, thus it cannot be said to be a matter which could influence voting at the scheme meeting: see Re SFE Corporation Limited [2006] FCA 670 per Gyles J at [6] to [7]; see also Re APN News & Media Ltd (2007) 62 ACSR 400 at [43]. 

5                                             I am satisfied that there is sufficient disclosure of this matter in the Scheme Booklet.  One of the matters which the directors took into account in coming to the view that the break fee is not excessive is that the break fee which is payable constitutes a reasonable amount to compensate M2 for the costs and disbursements incurred directly or indirectly by M2, as a result of the transaction not being implemented.

6                                             Moreover, the scheme makes provision for a break fee to be payable to People by M2.  It has been submitted that this circumstance provides for a degree of neutrality in the break fee provisions.  People estimates the costs and expenses of the scheme process at approximately $500,000.  This is another matter which the directors have taken into account in coming to the view that the break fee is not excessive. 

7                                             The second matter to which Mr Oakes made reference is the provisions contained in proxy voting deeds.  Certain shareholders have committed themselves to voting in favour of the transaction.  The proxy deeds make provision for this.  The proxy commitments are not given for consideration, nor are they given to representatives of M2 or its subsidiary which is to be the acquirer.

8                                             I have therefore come to the view that this is not a barrier to the making of the orders which are sought today.  I do not consider that the proxy voting deeds would result in the need for convening of any separate class meetings.  All of the other matters to which Mr Oakes took me this afternoon are in accordance with established procedures which have been considered in various authorities in this court and also in the Supreme Court of New South Wales. 

9                                             I am satisfied that the matters which are required to be proved at the first court hearing have been proved in the evidence to which I have been taken.  There is no order which is sought in the orders I propose to make that go beyond existing practice.  Otherwise, it is sufficient to say that all of the necessary matters have been covered in Mr Oakes’ written submissions. 

10                                         Accordingly, I propose to make orders in accordance with the draft orders which I will sign and date and place with the court papers.

Associate:

Dated:         25 February 2009