FEDERAL COURT OF AUSTRALIA

Patersons Securities Limited, in the matter of Patersons Securities Limited [2019] FCA 1438

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 411(1) of the Corporations Act 2001 (Cth) (Act):

(a)    the plaintiff convene and hold a meeting of the holders of its ordinary shares (Shareholders) (Scheme Meeting), for the purpose of considering, and if thought fit, agreeing, a scheme of arrangement (with or without modification) proposed to be made between the plaintiff and the Shareholders (Scheme), being the scheme substantially in the form set out in Annexure D of the scheme booklet containing the explanatory statement for the Scheme, which is annexed to the affidavit of Mark Anthony Paganin dated 2 September 2019 (Scheme Booklet);

(b)    the Scheme Meeting be held at 10.00 am (AWST) on 1 October 2019, at Level 8, Exchange Tower, 2 The Esplanade, Perth, in the State of Western Australia;

(c)    the Scheme Booklet, containing the explanatory statement required by s 412(1)(a) of the Act, in the form annexed to the affidavit of Mark Anthony Paganin, be and is hereby approved for distribution to Shareholders, subject to:

(i)    correction of any typographical or grammatical errors and final typesetting and formatting;

(ii)    any minor amendments required or approved by the Australian Securities and Investments Commission (ASIC) for registration under s 412(6) of the Act;

(iii)    the correction or update of any relevant date references; and

(iv)    any other amendments approved by the Court.

2.    Pursuant to s 1319 of the Act:

(a)    Timothy Michael Platts, or failing him, Philip Stanley Thomas Schofield, be the chairperson of the Scheme Meeting (Chairperson) and report the result of the Scheme Meeting to this Court;

(b)    subject to these orders, the Scheme Meeting is to be convened, held and conducted in accordance with:

(i)    the provisions of Part 2G.2 of the Act that apply to members of a company, and the provisions of the plaintiff's constitution that are not inconsistent therewith and that apply to meetings of members; and

(ii)    the notice of Scheme Meeting in the form or to the effect contained in Annexure F of the Scheme Booklet, as approved;

(c)    the Chairperson of the Scheme Meeting can adjourn the Scheme Meeting in their absolute discretion for such time that the Chairperson thinks appropriate, to a time and place advised by the Chairperson;

(d)    at the Scheme Meeting, two Shareholders entitled to vote, present in person or by proxy or by an attorney under power, or by a corporate representative (if applicable), shall constitute a quorum;

(e)    at the Scheme Meeting, each Shareholder, present and entitled to vote, will be entitled to one vote for each fully paid ordinary share in the capital of the plaintiff that the Shareholder is registered as holding at 5.00 pm (AWST) on 29 September 2019; and

(f)    at the Scheme Meeting, voting on the resolution on whether to approve the Scheme is to be conducted by way of a poll (declared by the Chairperson).

3.    Subject to registration of the Scheme Booklet with ASIC pursuant to s 412(6) of the Act, the plaintiff shall, on or before 3 September 2019, despatch the following documents to each Shareholder registered on the plaintiff's register of members at 5.00 pm (AWST) on 1 September 2019 (Register), using the methods of service set out in order 4 below:

(a)    a document substantially in the form of the Scheme Booklet;

(b)    a proxy form or electronic equivalent in respect of the Scheme Meeting (Scheme Proxy Form);

(c)    a proxy form or electronic equivalent in respect of the general meeting of Shareholders (General Meeting) to consider, and if thought fit approve, a special resolution to remove a provision from the plaintiff's constitution which (in effect) precludes any person from holding more than 20% of the total issued share capital in the plaintiff (General Meeting Proxy Form); and

(d)    a reply-paid envelope addressed to Computershare Investor Services Pty Ltd (Computershare) (in the case of Shareholders who have not nominated an electronic address for the purposes of receiving Patersons communications (including notices of any meeting) from Computershare).

4.    On or before 3 September 2019, the plaintiff shall despatch the documents identified in order 3:

(a)    to each Shareholder who has nominated an electronic address for the purposes of receiving Patersons communications (including notices of any meeting) from Computershare, by email, substantially in the form of annexure JET-7 to the affidavit of Jane Elizabeth Tandy dated 28 August 2019, with such email to:

(i)    contain a link to a website at which the Shareholder can access the Scheme Booklet; and

(ii)    contain a link to a website at which the Shareholder can lodge an electronic proxy form in respect of the Scheme and the General Meeting; and

(b)    to each other Shareholder who has a registered address in Australia, by prepaid post; and

(c)    to each other Shareholder who has a registered address outside of Australia, by international airmail or air courier.

5.    If it comes to the attention of the plaintiff that any email despatched in accordance with order 4(a) results in the return of a receipt or notice that the email was undeliverable, then, in respect of that Shareholder, the plaintiff will forthwith thereafter despatch the documents identified in order 3 using the method of service set out in order 4(b) or 4(c) (as relevant).

6.    Despatch of the documents referred to above, in accordance with the terms of the orders above, shall be taken to be sufficient notice of the Scheme Meeting.

7.    The time by which the Shareholders must return their Scheme Proxy Form (or lodge an electronic proxy in respect of the Scheme) is 10.00 am (AWST) on 29 September 2019.

8.    Rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules) shall not apply to the Scheme Meeting.

9.    The plaintiff is to give notice of the hearing of its application pursuant to s 411(4) of the Act, and that notice of the hearing of an application pursuant to s 411(4)(b) of the Act for orders approving the Scheme is to be published once in 'The Australian' newspaper by an advertisement substantially in the form of Annexure A to these orders, with such advertisement to be published on or before 2 October 2019, and the plaintiff is to be otherwise exempted from compliance with r 3.4 of the Corporations Rules.

10.    The proceeding be adjourned to 10.15 am (AWST) on 7 October 2019, for the hearing of an application to approve the Scheme.

11.    These orders be entered forthwith.

Annexure A

Patersons Securities Limited ACN 008 896 311

Notice of Hearing to Approve Scheme of Arrangement pursuant to section 411 of the Corporations Act 2001 (Cth)

To all members of Patersons Securities Limited ACN 008 896 311 (Patersons):

TAKE NOTICE that at 10.15 am (AWST) on 7 October 2019, the Federal Court of Australia at the Peter Durack Commonwealth Law Courts Building, 1 Victoria Avenue, Perth, Western Australia 6000 will hear an application by Patersons seeking the approval of a scheme of arrangement between Patersons and its ordinary shareholders, as proposed by a resolution passed by the meeting of ordinary shareholders held at 10:00 am (AWST) on 1 October 2019.

If you wish to oppose the approval of the above arrangement, you must file and serve on Patersons a notice of appearance, in the prescribed form, together with any affidavit which you wish to rely on at the hearing. The notice of appearance and affidavit must be served on Patersons at its address for service by no later than one day before 7 October 2019.

The address for service upon Patersons is:

C/- Clayton Utz

Level 27, QV.1 Building

250 St Georges Terrace

PERTH WA 6000

Reference: Cameron Belyea

Facsimile: 08 9481 3095

12.    Email: cbelyea@claytonutz.com.

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

REASONS FOR JUDGMENT

COLVIN J:

1    Patersons Securities Limited (Patersons) is an unlisted public company with 204 shareholders. It is a wealth management and capital markets firm. It is proposed that Patersons will become a subsidiary of Canaccord Financial Group (Australia) Pty Ltd (Canaccord Australia) which is itself a subsidiary of a Canadian company listed on the Toronto Stock Exchange. It is proposed that Canaccord Australia will acquire all the shares in Patersons under the terms of the scheme of arrangement pursuant to which cash consideration of up to $25 million will be paid to Patersons shareholders.

2    Patersons brings an application under s 411(1) of the Corporations Act 2011 (Cth) for orders convening a meeting of the members of Patersons to consider the scheme and to approve the scheme if approved by the members. At this first court hearing stage, the Court is only concerned with the making of orders to convene the meeting to consider the scheme.

3    The proper approach to review at the first court hearing as part of the process to approve a scheme is to consider 'whether the proposed scheme is not inappropriate and is one that sensible business people might consider of benefit to [the shareholders of the company]': Spookfish Limited, in the matter of Spookfish Limited [2018] FCA 1550 at [14] (Banks-Smith J). I summarised the principles to be applied in Barrick Mining Company (Australia) Pty Ltd v Barrick Administration Company Pty Ltd, in the matter of Barrick Mining Company (Australia) Pty Ltd [2018] FCA 1958 at [7]-[11].

4    The scheme is recommended by all directors of Patersons. They say that if approved and implemented, the scheme will benefit shareholders because the price to be paid is fair and reasonable, there is no superior proposal for the shares and there is no active secondary market for shares in Patersons. As to the recommendation of the directors, the issues raised by Farrell J in Gazal Corporation Limited, in the matter of Gazal Corporation Limited [2019] FCA 701 at [29]-[32], most recently considered by O'Callaghan J in Kidman Resources Limited, in the matter of Kidman Resources Limited [2019] FCA 1226 at [104]-[107], do not arise on the affidavit material.

5    In addition to the directors' recommendation, even though an independent expert's report is not required because Canaccord Australia and its associates do not own shares in Patersons and there are no common directors, such a report has been prepared. The independent experts say that the price that would be paid under the scheme is a premium of 37.7% to the 12 month volume weighted average price for shares in Patersons and a 56% premium to net tangible assets. Also, the business of Patersons is sub-scale in the current environment and therefore more exposed to market risk, and if the sale does not proceed there may be a need to buy out those who have invested capital in Patersons over time.

6    Having regard to the terms of the recommendation by the directors, the independent experts' report and the simple financial metrics and structure of the scheme, I am satisfied that the scheme is a commercial proposition that it is appropriate for consideration by members.

7    Further, on the basis of the affidavit material, the disclosure provided by the proposed scheme booklet gives sufficient information for shareholders to make a commercial assessment of the proposal. There is no material before me to suggest that there is anything incomplete or misleading about the proposal.

8    The scheme provides for a basic consideration of 22.05 cents per share and an additional payment of up to 1.5 cents per share subject to adjustment according to the terms of a deed, which amount is payable two years later. It is possible that the adjustment may be as to the full extent of the additional payment, with the result that there is no additional payment at all. This is clearly disclosed in the proposed scheme booklet. There is provision for a mechanism to resolve any disputes as to adjustments and for funding a representative of former Patersons shareholders in that regard. Even if there is no additional payment, in the opinion of the independent expert, the base consideration is still above the valuation range for the shares.

9    There is no real performance risk because the scheme, if approved and implemented, provides for the share consideration to be placed in an escrow account in cleared funds well prior to the transfer of shares.

10    The scheme provides that each Patersons shareholder is deemed to have provided warranties as to their shareholding being fully paid and free of security interests. Such clauses are common and are acceptable provided they are fully disclosed: APN News & Media Limited, in the matter of APN News & Media Limited [2007] FCA 770 at [59]-[63] (Lindgren J); and DuluxGroup Ltd, in the matter of DuluxGroup Ltd [2019] FCA 961 at [27] (O'Bryan J).

11    There is provision for a break fee representing less than 1% of the total consideration which is within the guideline given by the Takeovers Panel Guidance Note 7 - Lock-up devices. There is no indication that the fee does not reflect genuine commercial costs and risks.

12    Patersons has agreed an exclusivity period in relation to the transaction which is proposed to be implemented by the scheme, which period extends until 10 March 2020. It was agreed in June 2019. It is subject to a fiduciary and statutory duty carve-out. It is consistent with periods that have been found to be acceptable in other cases: see, in particular, the authorities referred to by Moshinsky J in Verdant Minerals Ltd, in the matter of Verdant Minerals Ltd [2019] FCA 556 at [51].

13    There are no unusual conditions precedent to the proposed scheme and most have been met.

14    I have been informed this morning informally of further approvals that have been obtained in Canada and those matters will be the subject of formal evidence in due course if the matter is to proceed to further consideration.

15    The proposed scheme meeting will be immediately followed by a general meeting to amend the constitution of Patersons to remove an article that prohibits any shareholder from acquiring or holding 20% or more of the total shares on issue. As was submitted to me today, it would be expected that if shareholders supported the scheme, they would then support that general meeting proposal. However, it is not a matter that is required to be approved by the Court and it gives rise to no issue for approval of the scheme on the present application. Therefore, it is not a matter that should stand in the way of the orders being made to convene a meeting for consideration of the scheme.

16    The requisite notice for the purposes of s 411(2) has been given to the Australian Securities and Investment Commission (ASIC). It does not seek to make any submissions to the Court on the application for orders to convene the meeting. ASIC has provided its usual letter indicating that it does not propose to appear to make submissions or to intervene to oppose the scheme at this first hearing.

17    As to s 411(17), the letter refers to an application having been made by Patersons for a written statement to the effect that ASIC has no objection to the scheme. The letter refers to ASIC's policy that it does not provide such a statement until the second Court hearing in relation to any scheme of arrangement. The letter says that this is because 'ASIC will not be in a position to advise the Court properly until it has had an opportunity to observe the entire scheme process'. It is also said to be consistent with the wording of the section which relates to the approval by the Court of the scheme. Nevertheless, the letter does state that the current position of ASIC is that it does not currently propose to appear or make submissions to intervene to oppose the scheme, based on the information available to ASIC as at the date of the letter on matters that ASIC would have regard to before it would state that it has no objection to a scheme under s 411(17)(b).

18    I was invited to approach compliance with s 411(17) on the basis that it would be dealt with at the second hearing in the event that the scheme was approved by members of Patersons. Reliance was placed upon the reasoning of Barrett J in Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [23]-[31]. It was also the view expressed more recently by Reeves J in Airtrain Holdings Limited, in the matter of Airtrain Holdings Limited [2013] FCA 209 at [54]-[55]. I will proceed on that basis.

19    Finally, the application was supported by submissions and a checklist demonstrating compliance with other aspects of s 411 and s 412 and the inclusion of the prescribed information in the scheme booklets as proof of the required company search and the disclosure of interests and conflicts of the proposed chairperson and alternative chairperson for the scheme meetings.

20    For those reasons, I am satisfied it is appropriate for the Court to make the orders sought to convene a meeting of members of Patersons to consider the proposed scheme. I will make orders substantially in terms of the minute of proposed orders.

Associate:

Dated:    2 September 2019