FEDERAL COURT OF AUSTRALIA

SRG Limited, in the matter of SRG Limited (No 2) [2018] FCA 1424

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to paragraph 411(4)(b) of the Corporations Act 2001 (Cth) (the Act), the scheme of arrangement between the plaintiff, SRG Limited, and the holders of fully paid ordinary shares in the plaintiff, in the form contained in Annexure B to the Scheme Booklet (and which is contained in Annexure SPG6 to the affidavit of Sevan Philip Gore affirmed 19 July 2018) be approved (the Scheme).

2.    Pursuant to subsection 411(12) of the Act, the plaintiff be exempted from compliance with subsection 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

BANKS-SMITH J:

1    On 20 July 2018 I made orders as to the calling of a meeting of shareholders of the plaintiff, SRG Limited (SRG): SRG Limited, in the matter of SRG Limited [2018] FCA 1092.

2    The scheme meeting was held on 22 August 2018 and the members agreed to the scheme by the requisite statutory majority.

3    Accordingly, SRG sought the Court's approval to the scheme on 27 August 2018 and I made orders that day granting approval. These are my reasons.

Jurisdiction to approve scheme

4    Section 411(4) of the Corporations Act 2001 (Cth) relevantly provides that an arrangement is binding on the members of a company and the company if, at a meeting convened in accordance with an order of the Court, a resolution in favour of the arrangement is:

(a)    passed by a majority in number of the members present and voting (either in person or by proxy) (s 411(4)(a)(ii)(A)); and

(b)    if the body has a share capital - passed by 75% of the votes cast on the resolution (s 411(4)(a)(ii)(B)),

and the arrangement is approved by order of the Court.

Materials

5    In addition to those also relied upon for the first court hearing, SRG relied on a further six affidavits:

(a)    affidavit of Sevan Gore confirming that SRG provided the scheme booklet to the Australian Securities and Investments Commission (ASIC) and that the second court hearing was advertised in accordance with the prior Court orders;

(b)    affidavit of Mark Landsberg as to the printing of the scheme booklet.

(c)    affidavit of Richard Fordham as to the collating and preparation of the scheme documents provided to SRG shareholders;

(d)    affidavit of Lisa Ahwan as to the printing and despatch of the scheme documents, including the scheme booklet and proxy form, to SRG shareholders and deposing to the maintenance of the share register, calculation of proxy vote numbers and the conduct of the scheme meeting in her capacity as returning officer;

(e)    further affidavit of Peter McMorrow, the Non-Executive Chairman of SRG as to the holding of the scheme meeting in accordance with the prior orders and deposing to the fact that statutory majorities on the resolution to approve the scheme were obtained; and

(f)    further affidavit of Mr Gore confirming that ASIC has given a statement in writing pursuant to s 411(17)(b) of the Corporations Act and that no objections to the scheme have been raised, and attaching relevant certificates as to the conditions precedent.

Relevant considerations for second Court hearing

6    The considerations relevant to the Court's decision to approve a scheme pursuant to s 411(4)(b) of the Corporations Act are well established. As a general proposition, where a majority of members have approved a scheme, the Court is not bound to approve it, however the Court should be slow to conclude that a scheme is unreasonable or unfair, provided that the members have been properly informed of matters relevant to the making of their decision, as that would otherwise involve the Court substituting its commercial judgment for that of the body of members: Seven Network Limited, in the matter of Seven Network Limited (No 3) [2010] FCA 400; (2010) 267 ALR 583 at [31]-[40] (Jacobson J).

7    The court must be satisfied of the relevant procedural matters, but also has a discretion as to whether to approve the scheme.

8    As to procedural matters, as summarised in various authorities including Re International Goldfields Ltd [2004] WASC 112 at [7] (Barker J) and EcoBiotics Limited, in the matter of EcoBiotics Limited (No 2) [2017] FCA 1031 at [11] (Gleeson J), the Court must be satisfied that:

(a)    the meeting was convened and held in accordance with the Court's earlier orders;

(b)    the resolution was passed with the requisite statutory majorities under s 411(4)(a); and

(c)    the plaintiff otherwise complied with the Court's earlier orders.

9    The factors that inform the Court's discretion more generally are summarised in Seven Network Ltd (No 3) at [35]-[40] and include:

(a)    whether the members have voted in good faith and not for an improper purpose;

(b)    whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it;

(c)    whether the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion;

(d)    whether there has been full and frank disclosure of all information material to the members' decision;

(e)    whether minority shareholders would be oppressed by the scheme;

(f)    whether the Court is satisfied that the scheme has not been proposed to avoid Chapter 6 of the Corporations Act; and

(g)    whether ASIC has no objection to the scheme.

SRG has complied with the orders and other procedural requirements

10    Having reviewed the evidence, I am satisfied that the procedural requirements have been met, other than as to an aspect of despatch of the scheme materials, that I address further below.

11    The orders and scheme booklet were lodged with ASIC.

12    The relevant procedures as to the receipt and collection of proxies and preparation of proxy reports were complied with.

13    The scheme meeting was advertised, convened and held in accordance with the orders.

14    According to the poll report prepared by Ms Ahwan, the scheme was agreed to by the requisite majorities for the purposes of s 411(4)(a)(ii) of the Corporations Act as follows:

(a)    99.63% of the votes cast on the resolution at the scheme meeting were cast in

favour of the scheme; and

(b)    94.58% of scheme shareholders present and voting (either in person or by proxy) voted in favour of the scheme.

15    The shares voted were 55,029,121 of the 82,173,611 shares on issue. Therefore, approximately 66.97% of shares on issue were voted. Further, 240 of 1530 eligible shareholders in SRG voted (that is, about 15.69% voted).

16    The issue of low voter turnout was addressed by Farrell J in TriAusMin Limited, in the matter of TriAusMin Limited (No 2) [2014] FCA 833 at [9]-[12] as follows:

The number of TRO shareholders who were eligible to vote at the Scheme Meeting was 1,463 holding 251,389,050 shares. Only 160 or 10.94% of TRO shareholders who were eligible to do so voted at the Scheme Meeting. Those shareholders who exercised votes held 52.9% of the shares. The Supporting Shareholders, Dr Gill and Tri Origin Exploration Limited, accounted for 26.4% of the votes.

Although the statutory requirement under s 411(4)(a)(ii) has been satisfied, it is the usual practice of the Court at the second court hearing to consider the number of shareholders who attended the Scheme Meeting in person or by proxy. Low shareholder turnout may be an indication that some procedural irregularity occurred. It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme: Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7] and Re Seven Network Limited (No 3) (2010) 267 ALR 583 (Re Seven Network Ltd) at [61] per Jacobson J; apathy should not be presumed to be antagonism: Re Matine Limited (1998) 28 ACSR 268 at 295 per Santow J.

Nonetheless it does call for consideration to ensure that the vote not unrepresentative, since the court retains the discretion to withhold its approval in that case: see Re Seven Network Ltd at [61] and Re BTR plc [2000] 1 BCLC 740 at 747. It is relevant to consider whether members have been deterred from attending or voting at the meeting: Re Cape plc [2006] EWHC 1446 at [20] per David Richards J.

Relatively low shareholder turnout did not prevent orders being made in Re Avoca Resources Limited [2011] FCA 208 (11.49% of shareholders holding 72.38% of shares) or Re Cortona Resources Limited (No 2) [2013] FCA 302 (17.5% of shareholders holding 45.2% of shares); see also Re Redcape Property Fund Limited and The Trust Company (RE Services) Limited [2012] NSWSC 486 per Black J at [6]. In Re Auzex Resources Limited (No 2) [2012] QSC 101 at [18] Applegarth J noted that a turnout of 9.75% of shareholders representing 42.3% of votes was substantially higher than at annual general meetings of the company. In Re Osiris Insurance Ltd [1999] 1 BCLC 182 only 35 of 971, scheme creditors with claims worth approximately 41% of the total value attended the meeting and Re British Aviation Insurance Co Ltd [2006] 1 BCLC 665, creditor turnout was 15% representing approximately 50% of claims. See Damian T and Rich A, Schemes, Takeovers and Himalayan Peaks (3rd edition, 2013, University of Sydney) at 4.4.2 for a full discussion of this issue.

17    I do not consider that the relatively low voter turnout prevents me from making orders under s 411(4)(b), taking into account that those shareholders who voted did so overwhelmingly in favour of the scheme and there is no evidence of any failure to comply with the despatch and procedural requirements such as would have deterred shareholders from voting.

Late despatch to 12 shareholders

18    Scheme booklets were not despatched to 12 shareholders until after the date provided by the orders, being 23 July 2018. Despatch was late because for one category of shareholders, there was an email bounce back and hard copies were subsequently despatched. For the second category, Computershare (the entity managing the despatch process) used a version of the share register dated 17 July 2018 rather than 20 July 2018 when arranging the despatch, and in the interim period a further eight shareholders came onto the register. Scheme booklets were despatched to those shareholders on 6 August 2018.

19    There was evidence that at least one shareholder in each category in fact voted, and so there is no reason to believe that the late despatch prevented the relevant shareholders from participating in the voting.

20    A hypothetical vote and headcount had those shareholders voted against the scheme would have resulted in 99.51% of shares being voted in favour of the scheme, with a headcount of 90.07%. In other words, the resolution would still have been overwhelmingly approved.

21    In the circumstances, I am satisfied that the procedural irregularity does not give rise to substantial injustice so as to necessitate orders under s 1322(2): see also Alchemia Limited, in the matter of Alchemia Limited (No 2) [2012] FCA 1136 at [9]-[11] (Yates J); iProperty Group Limited, in the matter of iProperty Group Limited (No 2) [2016] FCA 36 at [15] (Yates J); In the matter of Tatts Group Ltd (No 2) [2017] VSC 770 at [42]-[44] (Sifris J).

New shareholders

22    I note that SRG also put in place a process to inform new shareholders who entered the register after 23 July 2018 about the scheme and provide them with the relevant despatch documents. In my view, the process was satisfactory and enabled those new shareholders who were entitled to vote to do so on an informed basis.

The scheme is fair and reasonable

23    The Court generally takes the view that the members are in the best position to judge whether an arrangement is in their commercial interests and will be reluctant to make a decision contrary to the views expressed at the meeting.

24    The conclusion of the independent expert (Lonergan Edwards & Associates Limited) was to the effect that the scheme is fair and reasonable (see SRG Limited at [19]-[22]). Proof of the relevant statutory majorities is sufficient to establish that prima facie the scheme is fair. The members were provided with an explanation of the operation of the scheme at the meeting. No person came forward at either hearing to oppose the scheme. The Board of SRG publicly committed to a position whereby they recommended the scheme and no superior proposal was forthcoming.

25    Taking into account those matters, I considered that the scheme is evidently fair and reasonable. Further, there was no evidence from which I could properly infer any suggestion that the scheme was proposed for the purpose of avoiding Chapter 6 of the Corporations Act.

Conditions precedent were satisfied

26    The conditions precedent provided by the scheme implementation deed (SRG Limited at [3]) and the scheme document itself were satisfied and certificates were provided to that effect by both SRG and Global Construction Services Limited.

ASIC's statement provided

27    ASIC provided a letter advising that it has no objection to the scheme in accordance with s 411(17)(b) of the Corporations Act.

Disposition

28    I was satisfied that the scheme should be approved by the Court and accordingly I made orders to that effect at the hearing. SRG also sought exemption from compliance with s 411(11) of the Corporations Act. I considered it appropriate to grant the exemption.

Associate:

Dated:    17 September 2018