Federal Court of Australia

Uniti Group Limited, in the matter of Uniti Group Limited [2022] FCA 671

ORDERS

OTHER MATTERS:

A.    The Court notes that the Australian Securities and Investments Commission (ASIC) was provided with 14 days’ notice of the hearing of this application.

B.    The Court is satisfied that ASIC has had a reasonable opportunity to:

(a)    examine the terms of the proposed scheme of arrangement to which the application relates and a draft explanatory statement relating to that arrangement; and

(b)    make submissions to the Court in relation to the proposed scheme of arrangement and the draft explanatory statement.

C.    The Court notes the two letters from ASIC to the Directors of Uniti Group Limited each dated 6 June 2022 produced at the hearing.

THE COURT ORDERS THAT:

1.    Pursuant to rule 2.13(1) of the Federal Court (Corporations) Rules 2000 (Cth) (Rules), MBC BidCo Pty Ltd ACN 658 690 343 has leave to be heard in this proceeding without becoming a party to it.

2.    Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (the Act), the plaintiff, Uniti Group Limited (ACN 133 404 065) (Uniti), convene and hold the following two meetings of its shareholders to consider and, if thought fit, approve (with or without modification) a scheme of arrangement (Scheme) proposed between Uniti and its holders of fully-paid ordinary shares (Uniti Shareholders), the terms of which are set out in Annexure B to these orders:

(a)    a meeting of Uniti Shareholders, other than Michael John Simmons, Michael John Simmons as trustee for the Luab Unit Trust and Geoff William Aldridge as trustee for the Arsenal Aldridge Trust (together the Rollover Shareholders), such meeting to be held at 9.30 am (Melbourne time) on Friday, 15 July 2022 (General Scheme Meeting); and

(b)    a meeting of the Rollover Shareholders (Rollover Scheme Meeting), such meeting to be held on Friday, 15 July 2022 immediately after the General Scheme Meeting.

3.    The General Scheme Meeting is to be conducted electronically through an online platform without Uniti Shareholders being physically present, such online platform to be accessed in accordance with the instructions included in the Notice of General Scheme Meeting to be sent to shareholders in accordance with order 5 below.

4.    The Rollover Scheme Meeting is to be held at 22 Salmon Street, Port Melbourne, Victoria.

5.    Pursuant to s 411(1) and s 1319 of the Act, the General Scheme Meeting be convened by sending on or before 13 June 2022:

(a)    an email to each Uniti Shareholder who has nominated an electronic address for the purposes of receiving documents from Uniti (Electronic Recipients) (or, in the case of joint holders, to the holder whose name appears first in Uniti’s register), such email to be substantially in the form of pages 16 and 17 of annexure NSJ-1 to the affidavit of Nakul Joglekar dated 2 June 2022 (Joglekar Affidavit), which contains hyperlinks to:

(i)    a website from which the Electronic Recipient can download an electronic copy of the Scheme Booklet (as defined in order 6 below);

(ii)    a website from which the Electronic Recipient can download an electronic copy of a document substantially in the form of the document entitled "Online Shareholders’ Meeting Guide 2022", a copy of which is at pages 12 to 15 of annexure NSJ-1 to the Joglekar Affidavit (Online Meeting Guide);

(iii)    an online portal or website that is accessible by the Electronic Recipient and which enables the Electronic Recipient to lodge their proxy for the General Scheme Meeting online; and

(iv)    an online portal or website that is accessible by the Electronic Recipient to listen to and participate in the General Scheme Meeting online;

(b)    the following hard-copy documents to each Uniti Shareholder who is not an Electronic Recipient (or, in the case of joint holders, to the holder whose name appears first in Uniti's register) (Letter Recipient):

(i)    a letter, which is substantially in the form of pages 18 and 19 of annexure NSJ-1 to the Joglekar Affidavit, (Letter) setting out URL addresses which provide access to:

A.    an electronic copy of the Scheme Booklet;

B.    an electronic copy of a document substantially in the form of the Online Meeting Guide; and

C.    an online portal or website that is accessible by the Letter Recipient to listen to and participate in the Scheme Meeting online;

(ii)    a personalised hard copy proxy/voting form for the General Scheme Meeting (General Proxy Form), substantially in the form of pages 20 and 21 of Annexure NSJ-1 to the Joglekar Affidavit; and

(iii)    a prepaid envelope for the return of the completed General Proxy Form.

(c)    the following hard-copy documents to any Uniti Shareholder, who has elected under s 110E(2) of the Act to be sent documents in physical form:

(i)    the Letter;

(ii)    the Scheme Booklet;

(iii)    the Online Meeting Guide;

(iv)    the General Proxy Form; and

(v)    a prepaid envelope for the return of the completed General Proxy Form.

6.    The Scheme Booklet is a document substantially in the form of the Updated Final Draft Scheme Booklet at pages 7 to 227 of annexure PGS-2 to the affidavit of Peter Sise dated 6 June 2022 (including appendices A to E of those pages).

7.    Pursuant to s 411(1) and s 1319 of the Act, the Rollover Scheme Meeting be convened by sending on or before 13 June 2022 to each Rollover Shareholder the following hard-copy documents:

(a)    the Letter;

(b)    a personalised hard copy proxy/voting form for the Rollover Scheme Meeting, substantially in the form of pages 22 and 23 of annexure NSJ-1 to the Joglekar Affidavit; and

(c)    a prepaid envelope for return of the completed proxy form.

8.    Hardcopy documents be sent:

(a)    in the case of Uniti Shareholders whose registered address is within Australia, by prepaid ordinary post addressed to the relevant addresses recorded in Uniti’s register; and

(b)    in the case of Uniti Shareholders whose registered address is outside Australia, by airmail or international courier service addressed to the relevant addresses recorded in Uniti’s register.

9.    Compliance with r 2.15 of the Rules be dispensed with, except in so far as that rule applies r 75-15(2) of the Insolvency Practice Rules (Corporations) 2016 (Cth).

10.    Voting on any resolution(s) to approve the Scheme is to be conducted by way of a poll.

11.    Uniti Shareholders (other than the Rollover Shareholders) whose names are recorded in the register of members of Uniti at 7:00 pm (Melbourne Time) on 13 July 2022 will be eligible to vote at the General Scheme Meeting.

12.    Rollover Shareholders whose names are recorded in the register of members of Uniti at 7:00 pm (Melbourne Time) on 13 July 2022 will be eligible to vote at the Rollover Scheme Meeting.

13.    A proxy in respect of the General Scheme Meeting or the Rollover Scheme Meeting will be valid and effective if, and only if, the proxy form is completed and delivered in accordance with its terms or a proxy is lodged online in accordance with the relevant instructions by 9.30 am (Melbourne time) on 13 July 2022.

14.    Graeme Barclay or failing him, John Lindsay, be Chairperson of the General Scheme Meeting and the Rollover Scheme Meeting.

15.    The Chairperson of the General Scheme Meeting and the Rollover Scheme Meeting shall have the power to adjourn each meeting to such time, date and place as he considers appropriate.

16.    Compliance with r 3.4 and Form 6 of the Rules is dispensed with.

17.    Uniti publish a Notice of Hearing in The Australian newspaper, in substantially the form that appears at Annexure A hereto, not later than 5 days prior to the date fixed for the hearing of any application to approve the Scheme.

18.    The further hearing of the Originating Process is adjourned to the Honourable Justice Beach at 10.15 am on Thursday, 21 July 2022.

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

ANNEXURE A

Notice of hearing to approve compromise or arrangement

TO all the members of Uniti Group Limited ACN 158 957 889 (Uniti).

TAKE NOTICE that at 10.15 am (Melbourne time) on Thursday, 21 July 2022, the Federal Court of Australia at Melbourne VIC 3000 will hear an application by Uniti seeking the approval of a compromise or arrangement between Uniti and its members if agreed to by resolution(s) to be considered, and, if thought fit, passed by the meetings of its members to be held on Friday, 15 July 2022.

If you wish to oppose the approval of the compromise or arrangement, you must file and serve on Uniti a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Uniti at its address for service at least 1 day before the date fixed for the hearing of the application.

The address for service of Uniti is:

Attention: Fred Prickett

c/- Clayton Utz

Level 18, 333 Collins Street

MELBOURNE VIC 3000

Service via email will be accepted: fprickett@claytonutz.com

ANNEXURE B : Scheme of Arrangement

[The order entered is available on the Commonwealth Courts Portal, which attaches the Scheme]

REASONS FOR JUDGMENT

BEACH J

1    Uniti Group Ltd has applied for orders under s 411(1) of the Corporations Act 2001 (Cth) for two meetings of its shareholders to be convened to consider a proposed scheme of arrangement which provides for the acquisition of all of the fully-paid ordinary shares in Uniti by MBC BidCo Pty Ltd (the Scheme).

2    Holders of Uniti shares will be provided with information regarding the Scheme by a scheme booklet, which includes the explanatory statement required by s 412 for the scheme meetings as well as an independent expert report.

3    Uniti is an ASX-listed company that constructs, owns and operates fibre infrastructure and provides value-added telecommunications services. At the proposed cash price of $5.00 per Uniti share, an equity value on a 100% fully diluted basis is implied of approximately $3.62 billion.

4    The bidder, MBC, is an entity whose ultimate holding company is wholly owned by a consortium comprising BIF IV One Holdings LP, The Morrison & Co Infrastructure Partnership Master Fund S.C.SP and Commonwealth Superannuation Corporation in its capacity as trustee of the ARIA Investments Trust.

5    If the Scheme becomes effective and is implemented, it will result in Uniti shareholders at the scheme record date (scheme shareholders) transferring the Uniti shares that they hold at that date (scheme shares) to MBC.

6    Each scheme shareholder who is not a rollover shareholder will receive $5.00 in cash in respect of each scheme share, less the amount of any dividends, distributions or returns of capital to which scheme shareholders become entitled in relation to their scheme shares on or before the implementation date.

7    Each scheme shareholder who is a rollover shareholder and has elected to receive scrip for some of their scheme shares, will receive:

(a)    for those scheme shares for which they have elected to receive scrip, non-voting securities in the capital of MBC TopCo Pty Ltd (TopCo), which is the ultimate holding company of MBC; and

(b)    the cash consideration in respect of each scheme share for which they have not elected to receive scrip consideration.

8    Each scheme shareholder who is a rollover shareholder but has made no election to receive TopCo securities or cash consideration for their scheme shares will receive the cash consideration in respect of each scheme share.

9    The Scheme Implementation Deed (SID), which was entered into on 13 April 2022 between Uniti and MBC in essence provides that a rollover shareholder is a Uniti shareholder that is a member of the executive management team of Uniti or one of Uniti’s related bodies corporate or an affiliate of such a person, provided that Uniti and MBC have agreed in writing that the person is a rollover shareholder.

10    Uniti and MBC have agreed that the rollover shareholders are:

(a)    Michael John Simmons, who is the managing director and CEO of Uniti, and who owns 6,493,158 Uniti shares as at 31 May 2022;

(b)    Mr Simmons as trustee for the Luab Unit Trust, being an entity controlled by him, who owns 569,066 Uniti shares as at 31 May 2022; and

(c)    Geoff William Aldridge, who is the Chief of Infrastructure Networks & Technology of Uniti, as trustee for the Arsenal Aldridge Trust being an entity controlled by Mr Aldridge, who owns 1,575,427 Uniti shares as at 31 May 2022.

11    Although the rollover shareholders may elect to receive the scheme consideration partly in the form of the scrip consideration and partly in the form of the cash consideration, all other Uniti shareholders can only receive the cash consideration.

12    On 13 April 2022, the rollover shareholders each entered into a Voting and Rollover Agreement with MBC under which they agreed to elect to receive the scrip consideration for a specific number of their Uniti shares, and receive the cash consideration for the remainder of their Uniti shares, as well as to vote in favour of the Scheme in relation to all Uniti shares that they hold. On 2 June 2022, the rollover shareholders made the following elections in accordance with their obligations under the Voting and Rollover Agreements. Mr Simmons in his own capacity and as trustee for the Luab Unit Trust elected to receive TopCo securities for 2,000,000 of the Uniti shares which he owns or controls, which equates to approximately 28.3% of the total number of Uniti shares which he owns or controls. Mr Aldridge as trustee for the Arsenal Aldridge Trust elected to receive TopCo securities for 560,000 of the Uniti shares which he owns or controls, which equates to approximately 35.5% of the total number of Uniti shares which he owns or controls.

13    As reflected in the Scheme, MBC has determined that the number of TopCo securities per scheme share to be issued as scrip consideration will be:

(a)    such number of non-voting redeemable preference shares in the capital of TopCo (RPS management shares) as is equal to 31.5594% of the cash consideration, which based on an issue price of $1.00 per RPS management share equates to 1.578 RPS management shares for every Uniti share; plus

(b)    such number of non-voting fully paid ordinary shares in the capital of TopCo (ordinary management shares) as is equal to 68.4406% of the cash consideration, which based on an issue price of $1.00 per share equates to 3.422 ordinary management shares for every Uniti share.

14    The independent expert has assessed the value of a Uniti share as between $4.65 and $5.20 and provided the following opinions. In relation to the cash consideration, the expert’s opinion is that the Scheme is fair, in that the value of the cash consideration (assessed as $5.00 per Uniti share) is equal to or greater than the value of Uniti shares. Further, whilst the expert has not separately opined on whether the Scheme is fair in relation to the scrip consideration, the expert has assessed the aggregate value of the scrip consideration as equivalent to $4.48 to $5.00 per Uniti share, which is consistent with the cash consideration and no greater than $5.00 per Uniti share on an equivalent basis.

15    Now in light of the fact that rollover shareholders can elect to receive some of their scheme consideration as scrip whilst other shareholders can only receive cash, it is proposed to hold two separate scheme meetings which reflect these two different classes of shareholder. In my view that is appropriate and I will elaborate on this aspect in a moment.

16    Let me address another matter. Pursuant to clause 4.8 of the SID, Uniti may in its absolute discretion declare and pay a permitted dividend of up to $0.11 per Uniti share. Any permitted dividend must be declared and paid no later than the implementation date. The cash amount of $5.00 per share that I have referred to will be reduced by the amount of any permitted dividend, so that scheme shareholders will receive a total of $5.00 cash per scheme share if the Scheme is implemented, regardless of whether a dividend is paid. This adjustment will also affect the amount of TopCo securities provided to the rollover shareholders as scrip consideration. Accordingly, rollover shareholders will receive TopCo securities that are equivalent in value to $5.00 per share less the amount of the permitted dividend.

17    If, in addition to the permitted dividend, Uniti shareholders become entitled to any other dividends, distributions or returns of capital in relation to each Uniti share on or before the implementation date, the cash amount of $5.00 per Uniti share will also be reduced by the cash amount of the relevant dividend, distribution or return of capital.

18    Now the final decision of Uniti’s board of directors regarding the payment of any permitted dividend will be communicated to Uniti shareholders by way of an ASX announcement on or before the date of the scheme meetings. All Uniti shareholders who hold Uniti shares on the permitted dividend record date will be entitled to receive the permitted dividend. The permitted dividend record date is currently expected to be on 22 July 2022.

19    Further, MBC has agreed in clause 4.9 of the SID that if Uniti’s board decides to pay the permitted dividend and does pay the permitted dividend, MBC will either provide an unsecured, interest free loan to Uniti in an amount equal to the aggregate cash amount of the permitted dividend that is subordinated to Uniti’s existing debt facilities, or advance to Uniti the aggregate cash amount of the permitted dividend (together, the dividend funds), unless Uniti and MBC agree otherwise in their absolute discretion.

20    MBC’s obligation to provide or advance the dividend funds is subject to the Scheme becoming effective and the approval of Uniti’s shareholders pursuant to s 260B of the Act, unless Uniti’s board resolves that the relevant financial assistance does not materially prejudice Uniti’s ability to pay its creditors and is in the interests of Uniti and its shareholders. Now I note that Uniti’s board have now resolved by written resolution that the relevant financial assistance does not materially prejudice Uniti’s ability to pay its creditors and is in the interests of Uniti and its shareholders.

21    I should also say that MBC intends to satisfy its obligations under clause 4.9 of the SID by advancing Uniti the aggregate cash amount of the permitted dividend, if Uniti decides to pay the dividend. The dividend funds must be paid by MBC to Uniti at least one business day prior to the payment of the permitted dividend. The permitted dividend is expected to be paid on the date of implementation of the Scheme.

The Scheme is fit for consideration

22    In my view the Scheme is one which is fit for consideration by the proposed meetings of Uniti shareholders.

23    The principles which apply at this first stage are well known. As I summarised in Re RXP Services Limited [2021] FCA 38 at [18]:

Now as I have said on more than one occasion, my function on an application to order the convening of a meeting is supervisory. At this stage I should generally confine myself to ensuring that certain procedural and substantive requirements have been met including dealing with adequate disclosure, but with limited consideration of issues of fairness. But having said that, it is appropriate to consider the merits or fairness of a proposed scheme at the convening hearing if the issue is such as would unquestionably lead to a refusal to approve a proposed scheme at the approval hearing, that is, the proposed scheme appears now to be on its face “so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further” (Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [44] per French J). But in the present case, in my view there is no issue arising from the Scheme which would unquestionably lead to a refusal to approve the Scheme at the approval hearing. It cannot be said that the Scheme on its face is “so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further”. Put another way, the Scheme is not of such a nature and cast in such terms that if it receives the support of the statutory majorities at the meeting, nevertheless I would not be likely to approve it at the second court hearing.

24    It is not the Court’s role to usurp the shareholders’ decision whether to agree to a scheme by attempting to impose its own commercial judgment. And the question whether to accept particular consideration for shares is quintessentially a commercial matter for the members of Uniti to assess. They ought not to be prevented from having the opportunity to do so provided that I can be satisfied that they are acting on sufficient information and with time to consider what they are voting on. I am so satisfied.

25    Now I should say that in the context of addressing the question of whether the Scheme is fit for consideration by the members, Uniti has raised the following aspects of the Scheme for my attention:

(a)    the question of separate classes;

(b)    the recommendation of Uniti’s board;

(c)    performance rights and options;

(d)    performance risk;

(e)    the break fee;

(f)    the exclusivity period;

(g)    the deemed warranties;

(h)    financial assistance; and

(i)    the purpose of the Scheme being not to avoid Chapter 6 of the Act.

26    Let me specifically address (a) to (c) and (h), although I am also satisfied as to the other matters.

Separate class for rollover shareholders

27    Under the Scheme, the rollover shareholders have the option to receive TopCo securities for some or all of their Uniti shares, whereas other Uniti shareholders can only receive the cash consideration. In light of the different treatment of the rollover shareholders from other shareholders, it is necessary that the rollover shareholders form a separate class for the purposes of considering and agreeing to the Scheme.

28    Further and as I have already noted, each rollover shareholder has entered into an agreement with MBC to vote his Uniti shares in favour of the Scheme, which is irrevocable. This provides a further basis as to why separate classes are necessary. Not only is the form of consideration to be different, but it is also inappropriate for the other shareholders’ collective view to be indirectly contaminated by the contractual restrictions on voting to which the rollover shareholders are subject.

29    Accordingly, it is appropriate to order the convening of two meetings of Uniti shareholders: one comprising the rollover shareholders; and one comprising all other Uniti shareholders. This is the accepted course in cases of this nature.

30    In Re QMS Media Limited [2019] FCA 2172, shareholders of QMS were offered $1.22 for each QMS share apart from the rollover shareholders who were two entities controlled by the Global Chief Executive Office and Executive Director of QMS (Mr Nettleford) and one entity controlled by the Australia Chief Executive Officer (Mr O’Neill). Those entities entered into voting and rollover agreements under which they agreed to receive securities in a related entity of the bidder in respect of a certain percentage of their QMS shares and $1.22 per share for the remainder of their QMS shares. The scrip consideration for the rollover shareholders arose because to obtain the price of $1.22 per QMS share, the private equity firm that ultimately made the acquisition of QMS (being Quadrant) required Mr Nettlefold and Mr O’Neill to accept a proportion of their scheme consideration in the form of scrip consideration. O’Callaghan J ordered two classes and two meetings under s 411(1): one for the rollover shareholders and one for all other shareholders of QMS. His Honour made observations consistently with what I have just said.

31    In Re Zenith Energy Ltd [2020] WASC 266, the bidder offered $1.01 per share to acquire the shares of Zenith held by all shareholders other than the rollover shareholders. The rollover shareholders were two entities controlled by the executive chairman of Zenith (Mr Walker), the managing director of Zenith (Mr Moffat), an entity controlled by Mr Moffat, a shareholding in the name of Mr Moffat and his wife, the COO of Zenith and the Apex Trust. The rollover shareholders could elect to receive 66% to 100% of their consideration under the scheme as shares in a related entity of the bidder. Hill J ordered two classes and meetings under s 411(1): one for the rollover shareholders; and one for all other shareholders of Zenith. Her Honour held that the rollover shareholders comprised a different class as those were the only shareholders that had the right to elect to receive the scrip consideration. And as she said (at [42]):

I accept that the difference in the Scheme consideration being offered to the Rollover Shareholders and the other shareholders means that there is insufficient community of interest between all shareholders for them to consider in the one meeting whether the Scheme is in their collective interests.

32    The circumstances in Re Zenith and Re QMS are analogous to the context that I am dealing with. They involve a small number of senior executives in the target being offered the option to receive shares in a related entity of the bidder instead of the cash consideration which was offered to all other shareholders. As with Re Zenith and Re QMS, shares are a fundamentally different form of consideration to cash and hence the interests of the rollover shareholders are sufficiently different to warrant them forming a separate class. This is also a fortiori where the rollover shareholders are contractually bound to vote their shares in favour of the relevant scheme.

33    A similar situation arose in Re Navitas Limited [2019] WASC 180 where the bidder offered to acquire all shares in Navitas for $5.825 per share. Two shareholders known as the consortium shareholders were permitted to elect to receive shares in the bidder for some of their Navitas shares and $5.825 for the balance. The two consortium shareholders entered into agreements electing to receive shares in the bidder for 53.2% and 99.8% of their Navitas shares, respectively. As in the present case, the consortium shareholders were contractually obliged to support the scheme. The only difference of note between Re Navitas and the case before me is that the two consortium shareholders were not at the relevant time directors or senior managers of Navitas; but nothing turns on that point. Vaughan J considered there were two classes and ordered two meetings being one for the consortium shareholders and one for all other shareholders of Navitas. His Honour said (at [69]):

…The Consortium Shareholders constitute a different class as they may elect to receive the mixed consideration rather than the $5.825 cash per share. The shareholders other than the Consortium Shareholders constitute the second class of shareholder. I accept that the differential scheme consideration offered to the Consortium Shareholders and the other shareholders means that there is insufficient community of interest between all shareholders for all shareholders to consider whether the scheme is in their collective interests. The different scheme consideration on offer means that the Consortium Shareholders have a different interest than the other shareholders and therefore constitute a separate class to the other shareholders.

34    Re Navitas also supports the orders that I propose to make.

35    Let me also make one final point by reference to what I said in Re Healthscope Ltd (2019) 139 ACSR 608; [2019] FCA 542 at [118]:

Ultimately one has to be careful of stipulating rigid categories or hard and fast rules, although some cases may be clear one way or the other in terms of the necessity for separate delineation. This is because the “impossible…to consult together with a view to their common interest” criterion requires a commercial evaluative judgment to be made of the transactions, circumstances and consequences said to justify the delineation, in the context of the particular scheme and its effect overall. Moreover, if the asserted discriminating feature can be dealt with at the second court hearing, there is less of a need to be definitive at the first court hearing in terms of class definition except in a clear class. Moreover one should be cautious about stipulating separate classes. It can easily and wrongly empower a minority view; I can of course easily deal with excessive or oppressive majority influences at the second stage as Finkelstein J has pointed out relating to the Opes Prime creditors scheme. If the minority view against a scheme has been put into a separate class, you may have unnecessarily created a power of veto if for the particular scheme all classes need to achieve the requisite statutory majorities for the thing to work. Further, if the minority view against a scheme has been left with the general body but you have put in a separate class a shareholder who would have voted in favour, then you have relatively increased the voting power of the minority in the general body making it easier to defeat the scheme. As I say, all of this suggests that one should be cautious in separating classes except in a clear case. And as Finkelstein J rightly said in effect in Re Opes Prime Stockbroking Ltd (No 2) (2009) 179 FCR 20 at [66] one should not be too enthusiastic in taking a salamied approach. A “practical business-like approach” must be adopted. Otherwise you are locking in unnecessary downside, particularly when you do not need to given the second stage approval scrutiny that can take place.

36    But of course the first dimension of that problem does not arise in the present case as the separate class of rollover shareholders have contractually bound themselves to approve the Scheme. So the power of veto scenario concerning the “minority class” simply does not arise. The contractual restraint inter-alia justifying the separation in fact avoids the first dimension discussed in Re Healthscope.

Performance Rights and Options

37    The proposed treatment of the Uniti’s share rights, options and incentive plans gives rise to two potential issues. The first issue concerns classes. The second issue concerns the appropriateness of the directors, who may receive a benefit from the proposed treatment of the share rights, options and incentive plans, making a recommendation to shareholders in relation to the Scheme. Let me address the first issue at this point.

38    As to the first issue, I recently summarised the position in Re Australian Pharmaceutical Industries Limited [2022] FCA 103 as follows (at [39] to [42]):

……I have consistently held that members with existing performance rights which are to be cancelled in return for a cash payment or converted into shares which will participate in the Scheme do not constitute a separate class for the purposes of voting on the Scheme. In Re Healthscope Ltd (2019) 139 ACSR 608, I engaged in a review of the relevant authorities on classes at [105] to [120] and said (at [106]):

The well-established test for identifying a class for the purposes of a scheme of arrangement is that expressed by Bowen LJ in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583. Sovereign Life Assurance concerned a creditors’ scheme of arrangement, but the test enunciated by Bowen LJ has been adopted ever since in members’ schemes (Re Foster’s Group Limited [2011] VSC 93 at [15] per Ferguson J). Bowen LJ expressed the class test in the following terms:

…The word “class” is vague, and to find out what is meant by it we must look at the scope of the section, which is a section enabling the Court to order a meeting of a class of creditors to be called. It seems plain that we must give such a meaning to the term “class” as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest…

I also expressed the relevant question as being whether the rights of the relevant shareholders there under consideration were “so dissimilar from the rights of the other Healthscope shareholders as to make it impossible for them to consult together with a view to their common interest” (at [107]).

In Re Amcor Limited [2019] FCA 346, I considered the proposed treatment of employee incentive arrangements under the relevant transactions and held that no separate class meetings were necessary or desirable. I noted that this was because (at [86]):

[t]he holders of incentives who are also Amcor shareholders will participate in the Scheme on the same basis and receive the same consideration as Amcor shareholders who are not holders of incentives. That is, all shareholders are being treated equally under the Scheme. There is no additional benefit being offered by New Amcor to these shareholders under or in connection with the Scheme.

I applied these principles in Re Citadel Group Limited [2020] FCA 1580 in relation to performance rights, in Re DWS Limited [2020] FCA 1590 in relation to a potential benefit to a director in the form of a consultancy agreement, and in Re RXP in relation to performance rights and proposed cash payment incentives. In each case I held that the authorities do not support any requirement for a separate scheme meeting in respect of the matters raised. The considerations discussed apply with equal force to the Scheme, such that separate class meetings are not necessary or desirable as a result of the proposed treatment of the API performance rights.

39    Similarly, in the present case these considerations apply with equal force to the Scheme, such that separate class meetings are not necessary or desirable as a result of the proposed treatment of the share rights, options and incentive plans.

40    The share rights and options issued to Uniti’s employee and officers were issued as an incentive and reward for services provided by employees and officers and the shares that will be issued upon the vesting of the rights or options are of the same type or class to those held by other Uniti shareholders.

41    Further, and as properly disclosed in the scheme booklet, option holders will receive the consideration under the Scheme of $5.00 per scheme share less the amount of the exercise price of the options, share rights will vest so that holders of those rights receive one Uniti share per share right and then receive the consideration under the Scheme, and the incentives under the short and long-term incentive plans will be paid out.

42    In light of the above, no class issue arises concerning the options, share rights and incentive plans. In this respect, I note that O’Bryan J took a similar approach in Re Crown Resorts Limited [2022] FCA 367 at [55] to [61].

Recommendation of Uniti’s board

43    Clause 5.1(b) of the SID requires Uniti to include in the scheme booklet a statement from Uniti’s board that it unanimously recommends that Uniti shareholders vote in favour of the Scheme in the absence of a superior proposal and subject to the independent expert continuing to conclude that the Scheme is in the best interests of Uniti shareholders. Uniti’s board has unanimously recommended that Uniti shareholders vote in favour of the Scheme in respect of the cash consideration, in the absence of a superior proposal and subject to the independent expert continuing to conclude that the Scheme is in the best interests of Uniti shareholders. Uniti’s board has not made any recommendation in relation to whether the rollover shareholders should make an election to receive the scrip consideration as the relevant shareholders have already made that election.

44    In my view, a recommendation of the kind given by Uniti’s board is customary, even though the recommendation is given in circumstances where members of the board hold options and share rights and will receive payment of short and long-term incentives. Further, Mr Simmons is a rollover shareholder who has elected to receive TopCo securities for part of his Uniti shares.

45    Now as I identified earlier, the second issue in respect of the proposed treatment of Uniti’s share rights, options and incentive plans concerns the appropriateness of the directors, who may receive a benefit from that proposed treatment, making a recommendation to shareholders in relation to the Scheme.

46    In a number of recent decisions, courts have considered whether a director, who is to receive an additional benefit if a scheme is approved, should make a recommendation to members about voting in favour of the scheme. Differing views have been expressed. In some cases, the court has taken the view that, as a general rule, a director who will receive such a benefit should decline to make a recommendation to shareholders as to how they should vote. In other cases, the court has taken a different approach, holding that ordinarily the interests of directors ought not prevent them from making a voting recommendation to shareholders where that interest is sufficiently disclosed in the scheme booklet and shareholders may take it into account in determining the weight to give to that recommendation. The latter approach is to be preferred, for the reasons that I explained in Re DWS Limited [2020] FCA 1590 at [42] to [49].

47    Here, the interests of the Uniti directors in terms of the proposed treatment of their performance rights and options are not of such a nature that they ought to preclude the directors from making a voting recommendation to members. In any event, the interests are fully and prominently disclosed in the scheme booklet.

48    Now there is a separate question about whether Mr Simmons, who is a rollover shareholder, should make a recommendation. But it is important that the managing director give his reasons for putting forward the Scheme. And the consideration provided to Mr Simmons as a rollover shareholder is structured so that he receives the equivalent of the cash consideration provided to other Uniti shareholders. Accordingly, it is appropriate that Mr Simmons gives a recommendation.

49    Let me turn to the final topic that I want to say something about.

Financial assistance

50    If the permitted dividend is declared and paid by Uniti, there may arise a question whether financial assistance is given by Uniti to MBC to acquire the scheme shares. Section 260A of the Act provides that a company may financially assist a person to acquire shares in the company only if giving the assistance does not materially prejudice the interests of the company or its shareholders or the company’s ability to pay its creditors, the assistance is approved by shareholders under s 260B or the assistance is exempt under s 260C.

51    In considering the effect of those provision in relation to the permitted dividend, two questions arise being, first, whether the permitted dividend if declared and paid would constitute financial assistance within the meaning of the Act and, second, if payment of the permitted dividend would constitute financial assistance, is it nevertheless permitted by s 260A?

52    In my view payment of the permitted dividend would not constitute financial assistance under the Act, but if it did, it would nevertheless be permitted by s 260A.

53    As to the first question, the words “financial assistance” have no technical meaning. The task is to examine the commercial realities of the transaction to determine whether it can properly be described as the giving of financial assistance by the company. But in my view in the present case there is no such financial assistance.

54    First, MBC has agreed to fund the payment of the permitted dividend through payment of the dividend funds. Accordingly, if Uniti declares and pays the permitted dividend to its shareholders, it is not giving financial assistance to MBC to acquire the scheme shares, as MBC will be funding that payment.

55    Second, and in any event, the effect of the payment of the permitted dividend is merely to reduce the cash consideration payable for the scheme shares pursuant to the Scheme in a manner that would otherwise reflect the cash outflow from Uniti and the consequential reduction in its net assets. And whilst the SID anticipates the payment of the permitted dividend, the Scheme does not require the dividend to be paid. Declaration of the dividend is at the discretion of the Uniti board. Properly characterised, these arrangements are not financial assistance within the meaning of the Act. The proper characterisation of these arrangements is that the cash consideration for the acquisition of the scheme shares will be reduced to reflect the reduction in net assets of Uniti that would, in the absence of MBC’s obligation to provide or advance the dividend funds, result from payment of the dividend.

56    Let me turn to the second question. In any event, the payment of the permitted dividend would not prejudice Uniti, its shareholders or its ability to pay its creditors for the purposes of ss 260A(1)(a)(i) and (ii). A number of cases have considered this issue.

57    For example, in Re RXP Services, I held that the payment of the special dividend would not prejudice RXP, its shareholders or its ability to pay its creditors, and I referred to the evidence of RXP’s Chief Financial Officer that the net asset position of the company was more than sufficient to meet the payment of the special dividend, and the evidence that the payment would not prejudice the interests of RXP or its members or the ability of RXP to pay its creditors.

58    In the present case, the Group Chief Financial Officer of Uniti, Mr Inns, has deposed that based on his knowledge of the financial position and financial records of Uniti, the net asset position of Uniti will be more than sufficient to meet the payment of the permitted dividend and he does not believe that the implementation of the Scheme, the receipt of the dividend funds or the payment of the permitted dividend will in any way prejudice the interests of Uniti or its shareholders.

59    In addition, the following matters establish that the payment of the permitted dividend will not materially prejudice the interests of Uniti shareholders. The independent expert has opined that the cash consideration is fair and reasonable, and, therefore, in the best interests of Uniti shareholders, in the absence of a superior proposal. Further, the directors of Uniti have recommended that shareholders vote in favour of the Scheme in relation to the cash consideration. Further, Mr Inns also gives evidence that, in his view, the payment of the permitted dividend is fair and reasonable to Uniti shareholders as a whole. This addresses the prohibition in s 254T(1)(b) preventing a company from paying a dividend unless it is fair and reasonable to the company’s shareholders as a whole.

60    Further, the payment of the permitted dividend will not materially prejudice Uniti’s ability to pay its creditors. Mr Inns has deposed that based on his knowledge of the financial position and financial records of Uniti, he does not believe that the implementation of the Scheme, the receipt of the dividend funds or the payment of the permitted dividend will in any way prejudice the ability of Uniti to pay its creditors. This addresses the prohibition in s 254T(1)(c) preventing a company from paying a dividend if it will materially prejudice the company’s ability to pay its creditors.

61    In summary and accordingly, I do not need to trouble myself further with this question.

Conclusion

62    In summary, the conditions enlivening my power to order the convening of the necessary scheme meetings have been satisfied. Further, this is a clear case for the exercise of my discretion to make orders convening the meetings.

63    First, the terms of the Scheme are in a conventional form.

64    Second, there is no reason why the Scheme, if considered and adopted by members, is not of such a nature as would be likely to be approved by the Court at the second hearing.

65    Third, Uniti shareholders are to be presented with a detailed analysis by the independent expert of the transaction and its advantages and disadvantages.

66    Fourth, the Scheme has been recommended by the directors of Uniti.

67    Fifth, the scheme booklet provides a detailed description of the Scheme and its advantages and disadvantages, appears to meet all of the statutory requirements, has been properly prepared and verified by Uniti and MBC, and has been examined by ASIC for the purposes of being registered.

68    Sixth, it cannot be said that the Scheme appears on its face so blatantly unfair or otherwise inappropriate that Uniti shareholders should be deprived of the opportunity to consider and vote on it.

69    Seventh, I have been provided with copies of two letters from ASIC to Uniti’s directors both dated 6 June 2022. One letter concerns Uniti’s use of 31 December 2021 half-yearly accounts in the explanatory statement contained in the scheme booklet dealing with the necessary ASIC waiver. I need say nothing further about this. The other letter constitutes the standard indication of intent concerning a proposed statement under s 411(17)(b). I should also say for completeness that on the current material there is no Chapter 6 concern of the type referred to in s 411(17)(a) that has presently (at least) excited my interest.

70    Finally, I do not need or intend to formally approve the explanatory statement given that it must be registered in any event by ASIC (s 412(6)).

71    For these reasons I made the necessary orders.

Associate:

Dated:    8 June 2022