Federal Court of Australia

Japara Healthcare Limited, in the matter of Japara Healthcare Limited (No 2) [2021] FCA 1317

ORDERS

THE COURT NOTES THAT:

A.    This proceeding concerns a scheme of arrangement between the plaintiff and the holders of ordinary shares in the plaintiff, the terms of which are set out in the document that is Annexure BCP-1 to the affidavit of Bruce Craig Paterson affirmed on 14 September 2021 (Scheme).

B.    There has been produced to the Court a statement in writing by the Australian Securities and Investments Commission (ASIC) in accordance with s 411(17)(b) of the Corporations Act 2001 (Cth) (Act) stating that ASIC has no objection to the Scheme.

THE COURT ORDERS THAT:

1.    Pursuant to s 411(4)(b) of the Act, the Scheme is approved.

2.    Pursuant to s 411(12) of the Act, the plaintiff is exempted from compliance with s 411(11) of the Act in respect of 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

MOSHINSKY J:

Introduction

1    On 17 September 2021, I made orders that the plaintiff (Japara) convene and hold a meeting (Scheme Meeting) of holders of ordinary shares in Japara to consider and, if thought fit, approve a scheme of arrangement proposed to be made between Japara and its members (the Scheme). The background to, and the key terms of, the Scheme are set out in Japara Healthcare Ltd, in the matter of Japara Healthcare Ltd [2021] FCA 1150, published on 23 September 2021 (the September 2021 reasons).

2    These reasons should be read together with the September 2021 reasons. I adopt the abbreviations used in the September 2021 reasons. I will refer to the orders made on 17 September 2021 as the Convening Orders.

3    On 21 October 2021, the Scheme Meeting was held and the resolution to agree to the Scheme was passed by 89.89% of the votes cast and by 89.10% of shareholders present and voting (in each case, in person or by proxy).

4    By paragraphs 4 and 5 of its originating process, Japara seeks an order pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) that the Scheme be approved, and an order pursuant to s 411(12) that Japara be exempted from compliance with s 411(11) in relation to the Scheme.

5    The hearing of the application for those orders took place on 25 October 2021. At the conclusion of the hearing, I made orders in the terms sought by Japara.

6    The following are my reasons for making those orders.

The evidence and submissions

7    For the purposes of the hearing on 25 October 2021, Japara relied on the following further affidavits:

(a)    affidavit of Rodd Ashton Levy sworn on 21 October 2021;

(b)    affidavit of Timothy Tamer Farag affirmed on 21 October 2021;

(c)    affidavit of Linda Bardo Nicholls AO affirmed on 21 October 2021; and

(d)    affidavit of Mr Levy sworn on 25 October 2021 (the Fourth Levy Affidavit).

8    Japara filed a detailed outline of submissions, dated 21 October 2021, in advance of the hearing on 25 October 2021.

9    At the hearing on 25 October 2021, Japara was represented by Mr PD Crutchfield QC and Mr BK Holmes of counsel. They made oral submissions in support of the application, consistently with the written outline. Dr O Bigos QC appeared for Calvary. He indicated that Calvary supported the application and the proposed orders.

10    No person wishing to object to the Scheme sought to appear at the hearing on 25 October 2021.

Applicable principles

11    I discussed the applicable principles in Re Verdant Minerals Ltd (No 2) [2019] FCA 841 at [6]-[7]. For ease of reference, I incorporate the substance of those paragraphs into these reasons in the following paragraphs.

12    In approving a scheme of arrangement, the role of the Court is supervisory, requiring the Court to be satisfied that there has been no oppression and that the compromise or arrangement is one that is capable of being accepted by shareholders looking to their own commercial advantage. In Re NRMA Ltd (No 1) (2000) 156 FLR 349 (Re NRMA Ltd) at [41], Santow J quoted with approval the following passage from Renard IA and Santamaria JG, Takeovers and Reconstructions in Australia (Butterworths, Sydney, 1990, loose-leaf), at [1523]:

… the court will determine: (1) whether all the conditions required by s 411 have been complied with; (2) whether the majority of members or creditors, though acting regularly, have acted in good faith and not in pursuit of some illegitimate purpose; and (3) whether the proposal was “at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such member, might approve it”.* Fundamentally, the jurisdiction is supervisory; the court is concerned to be satisfied that there has been an absence of oppression and that the compromise or arrangement is one which is capable of being accepted: see Re Dorman Long & Co Ltd [1934] Ch 635; Scottish Insurance Corp Ltd v Wilsons and Clyde Coal Co Ltd [1949] AC 462 at 486.

* Per Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 212 at 247.

13    In deciding whether to give final approval to a scheme of arrangement, the Court will typically wish to be satisfied of the following matters:

(a)    that the orders of the Court convening a meeting of members were complied with;

(b)    that the meeting of members so convened has approved the scheme with the requisite majority;

(c)    that all the statutory requirements have been complied with;

(d)    that the majority of members have acted in good faith and not for any illegitimate purpose;

(e)    there is no suggestion of oppression of any minority;

(f)    that the scheme is fair and reasonable so that an intelligent and honest person, who is a member and acting alone in respect of his or her interest as a member, might approve it;

(g)    that there was full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme; and

(h)    that 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.

See Re NRMA Ltd at [41] per Santow J; Re Seven Network Ltd (No 3) (2010) 267 ALR 583 at [31]-[44] per Jacobson J; Re Solution 6 Holdings Ltd (2004) 50 ACSR 113 at [18]-[21]; Re Signature Capital Investments Ltd (No 2) [2016] FCA 385 at [4]; Re Medical Australia Ltd (No 2) [2017] FCA 1429 at [4]-[5]; Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [8]-[10]; and Re Healthscope Ltd (No 2) (2019) 136 ACSR 259 at [6]-[7], [11]-[14].

Application of principles to the present case

Statutory and procedural requirements

Dispatch of Scheme Booklet and other materials

14    The Convening Orders required that the Scheme Meeting be convened by providing various documents to Japara Shareholders on or before 22 September 2021, the principal document being the Scheme Booklet which annexed the Notice of Scheme Meeting (amongst other annexures).

15    In paragraphs 19 and 20 of Japara’s outline of submissions dated 21 October 2021, there are tables that set out the relevant requirements of the Convening Orders and the evidence that establishes that those requirements were satisfied. On the basis of that evidence, I am satisfied that the requirements of the Convening Orders relating to the dispatch of the Scheme Booklet and other materials were satisfied.

16    In addition, as required by r 3.5(b) of the Federal Court (Corporations) Rules 2000 (the Rules), an office copy of the Convening Orders was lodged with ASIC on 17 September 2021.

Full and fair disclosure to members

17    As required by s 412(6) of the Corporations Act, the explanatory statement (which was included within the Scheme Booklet) was registered by ASIC prior to being sent to shareholders. Registration took place on 17 September 2021, and the Scheme Booklet was provided to Japara Shareholders on 22 September 2021. The version of the Scheme Booklet provided to Japara Shareholders was the version that had been registered by ASIC.

18    Registration by ASIC is evidence of compliance with the disclosure obligations under s 412 of the Corporations Act. This is because s 412(8) provides that ASIC must not register the explanatory statement “unless the statement appears to comply with this Act and ASIC is of the opinion that the statement does not contain any matter that is false in a material particular or materially misleading in the form or context in which it appears”.

19    Further, in the September 2021 reasons at [77], I accepted Japara’s submission that the information in the Scheme Booklet had been subject to thorough verification processes, such that the Court “can be satisfied that it is accurate and includes all material information, that no material facts or considerations have been omitted, and that it is not misleading or deceptive”.

20    In light of these matters, it is submitted by Japara, and I accept, that through the Scheme Booklet and the further consideration given to the Scheme at the Scheme Meeting there has been full and fair disclosure to members of all information material to the decision whether to vote for or against the Scheme.

Receipt and processing of proxy voting instructions

21    Paragraph 7 of the Convening Orders provided that a proxy in respect of the Scheme Meeting was taken to be valid and effective if a Proxy Form was completed and delivered in accordance with its terms, or a proxy was lodged online in accordance with the instructions on the online portal or website referred to in paragraph 3(a)(iii) of the Convening Orders, and in each case received by Japara by 10.00 am (AEDT, being Melbourne time) on 19 October 2021 (Proxy Cut-Off Time).

22    The evidence establishes that all proxies received prior to the Proxy Cut-Off Time were duly processed and audited, with the voting instructions recorded against the relevant Japara Shareholder’s details in the Japara Database.

Conduct of Scheme Meeting and voting results

23    In paragraph 28 of Japara’s outline of submissions dated 21 October 2021, there is a table that sets out the requirements of the Convening Orders in relation to the conduct of the Scheme Meeting and evidence that establishes that those requirements were satisfied. On the basis of that evidence, I am satisfied that the requirements were satisfied.

24    In accordance with s 411(4)(a)(ii) of the Corporations Act, the resolution to agree to the Scheme was passed by a majority in number of members present and voting (either in person or by proxy) at the Scheme Meeting, and by 75% of the votes cast on the resolution. In particular, the evidence establishes that the resolution to agree to the Scheme was passed by 89.89% of the votes cast and 89.10% of shareholders present and voting (in each case, in person or by proxy).

Low voter turnout

25    The number of shares voted at the Scheme Meeting as a percentage of Japara’s total issued share capital was 51.43%, and the number of shareholders who voted as a percentage of the total number of Japara’s shareholders was 12.53%.

26    Although the level of shareholder turnout of 12.53% may be considered relatively low, Japara submits, and I accept, that this does not give rise to any concern that shareholders were deterred from attending the Scheme Meeting or did not have notice of it.

27    The leading authority on the court’s approach to low voter turnout is Re TriAusMin Ltd (No 2) [2014] FCA 833 where Farrell J approved a scheme where 10.94% of shareholders, holding 52.90% of shares, voted at the scheme. Her Honour held as follows (at [10]):

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 the 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 the notice of the meeting or were silent in protest of the scheme ... apathy should not be presumed to be antagonism: [Re Matine Limited (1998) 28 ACSR 268 at 295 per Santow J].

28    Her Honour’s analysis has been applied in a number of subsequent cases: see Re Sienna Cancer Diagnostics Limited (No 2) [2020] FCA 1088 (Re Sienna Cancer Diagnostics) at [33]-[34] and cases there cited; see also Re Amcor Ltd (No 2) [2019] FCA 842 at [18]-[20] per Beach J.

29    Japara submits, and I accept, that the low voter turnout in the present case does not give rise to any concern that shareholders were deterred from attending or did not have notice of the Scheme Meeting. In particular:

(a)    there is nothing to suggest any irregularity in dispatch of material to the shareholders;

(b)    shareholders were provided with notice of the Scheme Meeting;

(c)    there is no evidence of any issue that would have deterred shareholders from voting at or from attending the Scheme Meeting, and Japara has not received any complaint from any shareholder that they did not receive notice of the Scheme Meeting; and

(d)    those shareholders who did vote, voted overwhelmingly in favour of the Scheme.

30    In addition, the level of voter turnout is consistent with (and higher than) the voter turnout for Japara’s Annual General Meetings held between 2018 and 2020.

Advertisement of second court hearing

31    Paragraph 10 of the Convening Orders dispensed with r 3.4 and Form 6 of the Rules, and paragraph 11 required Japara to publish a Notice of Hearing in The Australian newspaper in substantially the form that appeared at Annexure B to the Convening Orders not later than 5 days prior to the date fixed for the hearing of any application to approve the Scheme.

32    A notice in the form that appeared at Annexure B to the Convening Orders was published on 15 October 2021, which was more than 5 days prior to the date fixed for the second court hearing (being 25 October 2021).

Section 411(17)

33    Section 411(17) provides that the Court must not approve a compromise or arrangement 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 to the effect that ASIC has no objection to the compromise or arrangement.

34    As I noted in Re Sienna Cancer Diagnostics at [37]-[38], it is well-established that the Court should not refuse approval of a scheme of arrangement merely because it could have been effected under Chapter 6: see Re ACM Gold Ltd & Mt Leyshon Gold Mines Ltd (1992) 34 FCR 530 at 542-543; Re Stockbridge Ltd (1993) 9 ACSR 637 at 652-653; Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at 265; Re Lion Selection Ltd [2009] VSC 546 at [21]. Where a “no objection” statement is received from ASIC, there is no need for the Court to consider s 411(17)(a), particularly where no issue has been raised concerning Chapter 6 of the Corporations Act: see Re Tatts Group Limited (No 2) [2017] VSC 770 at [36] and [38]; see also Re Legend Corporation Limited (No 2) [2019] FCA 1444 at [32]; Re DuluxGroup Limited (No 2) [2019] FCA 1225 at [32].

35    A “no objection” statement that satisfies the requirements of s 411(17)(b) has been provided by ASIC. A copy of ASIC’s letter, dated 22 October 2021, is annexed to the Fourth Levy Affidavit.

Conditions precedent

36    Before approving a scheme, the Court will ordinarily require that all conditions precedent to the scheme (other than the Court’s approval of the scheme and the scheme coming into effect) have been satisfied or waived.

37    There are a number of conditions precedent to the SID and to the Scheme. These are set out in paragraph 41 of Japara’s outline of submissions dated 21 October 2021.

38    The Scheme and the SID require that Japara and Calvary must each provide to the Court at the approval hearing a certificate confirming whether or not the conditions precedent have been satisfied or waived.

39    Annexed to the Fourth Levy Affidavit is a certificate dated 25 October 2021 executed as a deed by both Japara and Calvary to the effect that each of the conditions precedent:

(a)    in cl 3.1 (other than the condition relation to court approval) of the SID has been satisfied or is waived; and

(b)    in cls 3.1(a) and (b) of the Scheme has been satisfied.

40    Japara submits, and I accept, that the certificate constitutes sufficient evidence that all conditions precedent (other than court approval of the Scheme) have been satisfied or waived. Japara submits, and I accept, that the issue discussed in some cases (see, eg, Re AuStar Gold Ltd [2021] FCA 711 at [26]) concerning the desirability of primary evidence of the satisfaction of conditions precedent does not arise in the present case.

Exercise of discretion

41    As noted above, ASIC has issued a “No objection under s 411(17)(b)” letter, stating that ASIC has no objection to the Scheme.

42    At the time of the hearing on 25 October 2021, Japara had not received notice that any person intended to appear at the hearing to oppose the Scheme. No person wishing to object to the Scheme sought to appear at the hearing.

43    In my view, this is an appropriate case for the Court to make an order approving the Scheme pursuant to s 411(4)(b) of the Corporations Act. In reaching this view, I have had regard to the role of the Court (as described earlier) and to the following matters:

(a)    the overwhelming support of the Japara Shareholders as reflected in the voting results of the Scheme Meeting. I note that courts generally take the view that shareholders are in the best position to judge whether an arrangement is in their commercial interests, and the court should be reluctant to make a decision contrary to the views expressed by the shareholders at the meeting;

(b)    the recommendation from all Japara directors that Japara Shareholders vote in favour of the Scheme, for the reasons given in the Scheme Booklet, and the fact that the directors stated their intention to vote all of the Japara Shares held or controlled by them in favour of the Scheme;

(c)    the opinion of the independent expert that the Scheme is fair and reasonable and in the best interests of Japara Shareholders;

(d)    the disclosures in the Scheme Booklet which set out a detailed description of the proposed Scheme, including the potential benefits and disadvantages of the Scheme;

(e)    there is no application to oppose the orders approving the Scheme, and no evidence as to any oppression in the conduct of the Scheme Meeting;

(f)    the Scheme contains measures to protect shareholders against performance risk;

(g)    there is nothing to suggest that the Scheme has been proposed other than in good faith, or that the shareholders voted other than in good faith and for proper purposes; and

(h)    there is no suggestion of oppression of any minority, and no evidence that any third party will be disproportionately adversely affected by the operation of the Scheme.

Exemption from s 411(11)

44    Japara seeks an order that, pursuant to s 411(12) of the Corporations Act, Japara be exempted from compliance with s 411(11) of the Corporations Act in respect of the Scheme.

45    I accept that it is appropriate in the circumstances to make such an order. There is no need for the Court order approving the Scheme to be annexed to every copy of the Japara Constitution because there is no alteration to the Constitution and Japara shareholders are fully informed of the Scheme. An order under s 411(12) of the Corporations Act is regularly made on this basis.

Conclusion

46    For the above reasons, I made orders to the effect that:

(a)    pursuant to s 411(4)(b) of the Corporations Act, the Scheme be approved; and

(b)    pursuant to s 411(12) of the Corporations Act, Japara be exempted from compliance with s 411(11) of the Corporations Act in respect of the Scheme.

Associate:

Dated:    27 October 2021