Federal Court of Australia

Absolute Equity Performance Fund Ltd, in the matter of Absolute Equity Performance Fund Ltd (No 2) [2022] FCA 1135

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to subsection 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the plaintiff and its members agreed to by the said members at the meeting held on 15 September 2022, the terms of which are set out in Exhibit 2 in the proceeding, be approved (Scheme).

2.    The plaintiff lodge with the Australian Securities and Investment Commission a copy of the approved Scheme at the time of lodging a copy of these Orders.

3.    Pursuant to subsection 411(12) of the Act, the plaintiff be exempted from compliance with subsection 411(11) of the Act in relation to Order 1.

4.    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

HALLEY J:

Introduction

1    On 11 August 2022, after the first court hearing in this matter, I made orders under ss 411(1) and 1319 of the Corporations Act 2001 (Cth) (Act) that the plaintiff, Absolute Equity Performance Fund Limited (AEG) convene a meeting of the holders of its fully paid ordinary shares (Scheme Meeting) for the purpose of considering, and if thought fit, agreeing to a proposed scheme of arrangement to be made between AEG and its shareholders (Scheme) and approving a scheme booklet to be distributed by AEG to its shareholders (Scheme Booklet): see Absolute Equity Performance Fund Ltd, in the matter of Absolute Equity Performance Fund Ltd [2022] FCA 933.

2    On 21 September 2022, I made orders under s 411(4)(b) of the Act approving the Scheme, which will result in the acquisition of all the shares in AEG by WAM Leaders Limited (WLE).

3    These are my reasons for making those orders.

Background

4    The Scheme Meeting was held on 15 September 2022. The statutory majorities required by s 411(4)(a)(ii) were attained at the meeting, as follows:

(a)    shares present and voting in favour, 95.59%; and

(b)    members present and voting in favour, 98.28%.

5    The application by AEG for the approval of the proposed Scheme was uncontested.

6    The plaintiff relied on the following affidavits at the second court hearing, in addition to the affidavits it read at the first court hearing:

(a)    the affidavit of Marc Michael Fisher, the Chairman and managing director of AEG, affirmed 19 September 2022. Mr Fisher gives evidence of the Scheme Meeting, resolution and voting at the Scheme Meeting, that AEG shareholder were notified of the second court hearing in this matter (Second Court Hearing), and ASX announcements were made as requested by the Australian Securities and Investment Commission (ASIC);

(b)    the affidavit of Harry Michael Forsythe, a lawyer at Mont Lawyers Pty Limited, the solicitors for AEG (Mont Lawyers), affirmed 19 September 2022. Mr Forsythe gives evidence of the registration of the Scheme Booklet with ASIC, corrections made to the Scheme Booklet, and the notice of the Second Court Hearing published in The Australian newspaper;

(c)    the affidavit of Lisa Dadswell, the Joint Head of Company Secretarial Services employed by Boardroom Pty Ltd (Boardroom), affirmed 20 September 2022. Ms Dadswell gives evidence that Boardroom maintains the share register of AEG. She further gives evidence of Boardroom’s engagement by AEG to facilitate the Scheme Meeting, including creating a data file of AEG shareholders, despatching hard copy and electronic copies of the Scheme Booklet, verifying attendees at the Scheme Meeting, tallying the vote undertaken at the Scheme Meeting, creating a report of the voting result and recording voter turnout;

(d)    the affidavit of Jesse Michael Hamilton, the joint Company Secretary of WLE and the Chief Financial Officer of Wilson Asset Management International Pty Ltd (Wilson Asset Management), the holding company of WLE, sworn 20 September 2022. Mr Hamilton gives evidence of a variation made to the Scheme Implementation Agreement as requested by the Court at the First Court Hearing, that there has been no material change in WLE’s financial position since the Scheme Meeting and evidence as to voting by Wilson Asset Management; and

(e)    the affidavit of Saxon Barbara Naulls-Johnstone, a director of Mont Lawyers, affirmed on 21 September 2022. Ms Naulls-Johnstone gives evidence of the number of ineligible overseas shareholders, confirms that no notice to appear at the Second Court Hearing had been received and annexes the usual letter from ASIC stating that it had no objection to the proposed Scheme and a notice confirming that all conditions precedent to the Scheme had been satisfied or waived.

Legal Principles

7    In Dragontail Systems Limited, in the matter of Dragontail Systems Limited (No 2) [2021] FCA 834 (Dragontail), I summarised at [7]-[11] the principles relevant to the exercise of the discretion to grant approval to a scheme after it has received the consideration and approval of a meeting of the members or creditors under s 411(4)(b) of the Act. For ease of reference, I set out below those paragraphs of that judgment.

8    Insofar as discretionary considerations are concerned, the general principles which guide the Court’s discretion are well established and are helpfully summarised by Gleeson J in EcoBiotics Limited, in the matter of EcoBiotics Limited (No 2) [2017] FCA 1031 at [26]-[28], which I respectfully adopt.

9    The Court has a discretion whether to approve a scheme and is not bound to approve it merely because it has previously made orders for the convening of meetings or because the statutory majorities have been achieved: Seven Network Limited, in the matter of Seven Network Limited (No 3) (2010) 77 ASCR 701; [2010] FCA 400 (Re Seven Network) at [31] (Jacobson J), citing NRMA Limited (Application of); NRMA Insurance Limited (Application of) (2000) 34 ACSR 261; [2000] NSWSC 408 (Re NRMA) at [22] (Santow J).

10    The Court will usually approach the task on the basis that the members are better judges of what is in their commercial interests than the Court: Re Seven Network at [32]-[33].

11    At [35] to [40] of Re Seven Network, Jacobson J set out the following six matters which courts have taken into account as informing their discretion regarding whether or not to approve a scheme:

(a)    whether the shareholders have voted in good faith and not for an improper purpose: In the matter of Foundation Healthcare Limited (No 2) (2002) 43 ACSR 680; [2002] FCA 973 at [27] (French J, as his Honour then was);

(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: Fowler v Lindholm, in the matter of Opes Prime Stockbroking Limited (2009) 178 FCR 563; [2009] FCAFC 125 at [79] (Emmett, Gordon and Jagot JJ);

(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: Permanent Trustee Company (2002) 43 ACSR 601; [2002] NSWSC 1177 at [7] (Barrett J);

(d)    whether there has been full and fair disclosure of all information material to the decision: Re NRMA at [30];

(e)    whether minority shareholders would be oppressed by the scheme: Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd (2002) 42 ACSR 582; [2002] WASC 207 at [39] (Parker J); and

(f)    whether the scheme offends public policy: see for example CSR Limited, in the matter of CSR Limited (2010) 183 FCR 358; [2010] FCAFC 34 at [51]-[56] (Keane CJ and Jacobson J).

Consideration

Satisfaction of standard requirements

12    I am satisfied that the evidence relied upon by the plaintiff establishes all of the procedural matters that are necessary to permit me to approve the Scheme.

13    In the course of his oral submissions at the Second Court Hearing, Mr Oakes SC, who appeared for the plaintiff, specifically drew my attention to a potential issue with the resolution passed at the Scheme Meeting approving the Scheme. The document described as a Voting Result Report that was provided to the Chair of the Scheme Meeting showed the percentage voting by number of shares but did not include the percentage by number of shareholders voting (headcount). The Chair, however, as required by s 251AA of the Act had earlier notified the Scheme Meeting of the voting by proxies, both by numbers of shares and headcount. This notification had disclosed that of those shareholders providing proxies, 498 shareholders (95.41% by headcount) had voted in favour of the Scheme, nine shareholders (1.72% by headcount) had voted against, one shareholder had abstained and 15 shareholders (2.87% by headcount) had left their proxies open, and the Chair would vote the open proxies in favour of the Scheme.

14    Hence, although the Voting Result Report did not specifically refer to a headcount vote, at the time that the Chair declared the resolution to approve the Scheme carried he was aware of the headcount percentages from the s 251AA disclosure that he had read out, the fact that he had voted the proxies in favour of the Scheme and that the two shareholders present in person at the Scheme Meeting (who had not provided proxies) had all voted in favour of the Scheme. I am therefore satisfied that headcount test majority was satisfied as 515 shareholders had voted in favour with only nine against (98.28% by headcount).

Discretionary considerations

15    As to fairness, the independent expert report of David John McCourt, a director of BDO Corporate Finance (East Coast) Pty Ltd (BDO Report), concluded that the Scheme is fair and reasonable and in the best interests of AEG shareholders. I am satisfied that there is no evidence to the contrary and nothing in the BDO Report, on its face, that suggests that the opinion should not be accepted.

16    Further, I observe that the reasonableness of the Scheme was established, at least on a prima facie basis, at the first court hearing pursuant to the principle in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72 (Street CJ, with whom Hutley and Samuels JJA agreed), subject to any new matters being brought to the Court’s attention at the second court hearing.

17    There is nothing before me to suggest that the relevant AEG shareholders voted other than in good faith, that they cast their votes for an improper purpose or that any member had been treated in a way that may be characterised as oppressive. Nor is there anything that materially casts doubt on the procedural integrity of the processes followed for the Scheme Meeting.

18    ASIC has provided a statement pursuant to s 411(17)(b) of the Act stating that it has no objections to the Scheme.

19    ASIC had otherwise requested that AEG bring to the Court’s attention that the updated worked example of the Scheme consideration formula released, per the timetable in the Scheme Booklet, on 14 September 2022 was published in the afternoon (at 2.56 pm). ASIC was concerned that timing of the announcement did not allow AEG Shareholders who had submitted proxies sufficient time to consider the worked example and, if necessary, withdraw their proxies. However ASIC’s concerns were mitigated by the fact that the ratio announced on 14 September 2022 was higher than the ratio disclosed in the Scheme Booklet.

20    AEG’s announcement could not be released until after WLE had released its net tangible assets calculation (which did not happen until at 12.07 pm that day). AEG had also hoped to include within its announcement an updated implementation timetable (following approval of the implementation timetable from the Australian Securities Exchange (ASX)) as a result of the National Day of Mourning for Her Majesty, Queen Elizabeth II on 22 September 2022. As ASX approval was not forthcoming, ASIC requested AEG to release the announcement without the updated implementation timetable, which was done.

21    Other than the foregoing, ASIC has not raised any public policy concern and there is nothing before me to suggest that there should be any such concern.

22    I am satisfied that fairness can be inferred in all the circumstances including the obtaining of the statutory majorities in the Scheme Meeting in a context where I was satisfied that there was adequate and verified disclosure and those who voted did so as the best judges of their own interests.

Despatch of the Scheme Booklet

23    A hard copy mail out of the Court approved letter and proxy forms to the remaining AEG shareholders was completed on 15 August 2022. An email in the form approved by the Court was sent to all AEG shareholders who had consented to receiving shareholder communications electronically on 11 August 2022.

24    The electronic and hard copy mailout reflected the share register as at 7.00 pm on 10 August 2022.

25    There is no statutory obligation to notify members of the Scheme Meeting if they come onto the share register after the date of the initial mailout. Notwithstanding the absence of such a requirement, the 27 new AEG shareholders who came onto the share register in the period 11 August 2022 to 5 September 2022 were sent personalised letters, proxy forms and envelopes by mail.

Voter turnout

26    The concept of voter turnout at a scheme meeting has no statutory basis, but as a matter of practice, the Court has (since the decision of Emmett J in Lion Nathan Limited, in the matter of Lion Nathan Limited (No. 2) [2009] FCA 1261 (Lion Nathan) requested and had regard to such evidence for the purpose of assessing the integrity of the process. As Farrell J observed TriAusMin Limited, in the matter of TriAusMin Limited (No 2) [2014] FCA 833 (TriAusMin) 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 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 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 Ltd (No 3) (2010) 267 ALR 583 … at [61] per Jacobson J; apathy should not be presumed to be antagonism: Re Matine Ltd (1998) 28 ACSR 268 at 295 per Santow J.

27    Voter turnout percentages at the Scheme Meeting were as follows:

28    These voter turnout percentages compare favourably with voter turnout percentages noted by Courts in approving schemes of arrangement in: Lion Nathan at [6] (Emmett J), 64% of shares participating; Avoca Resources Limited, in the matter of Avoca Resources Limited [2011] FCA 208 at [25] (Gilmour J), 72.38% by shares participating and 11.49% by persons participating; Re Auzex Resources Ltd (No 2) [2012] QSC 101 at [18] (Applegarth J) 42.3% by shares participating and 9.75% by persons participating; TriAusMin at [9] (Farrell J) 52.9% by shares participating and 10.94% by persons participating; Dragontail at [20] (Halley J) 78.7% by shares participating and 24.1% by members participating; and Over the Wire Holdings Limited, in the matter of Over the Wire Holdings Limited (No 2) [2022] FCA 181 at [19] (Halley J) 69.6% by shares participating and 18.1% by members participating.

29    The percentages achieved at the Scheme Meeting also compare favourably with the percentages of 18.69% by members participating at AEG’s 2020 annual general meeting and 15.47% by members participating at AEG’s 2021 annual general meeting.

30    I am satisfied that given the evidence as to the despatch of the Scheme Booklet and the voter turnout percentages at the Scheme Meeting, there is nothing to suggest that there was any flaw in the procedure for convening the Scheme Meeting.

Section 411(11) exemption

31    Section 411(11) of the Act provides that copies of all orders made by the Court for approving a scheme pursuant to s 411(4)(b) of the Act must be annexed to every copy of the company’s constitution issued after the approval of the scheme. Section 411(12) of the Act provides that the Court may exempt a company from complying with s 411(11).

32    I am satisfied that it is appropriate to make an order pursuant to s 411(12) of the Act exempting AEG from compliance with s 411(11), in circumstances where the Scheme will not amend the constitution of AEG and AEG will become a wholly owned subsidiary of the acquirer upon implementation of the Scheme: In the matter of Toll Holdings Limited (No 2) [2015] VSC 236 at [18]-[19] (Robson J); In the matter of BINGO Industries Limited [2021] NSWSC 911 at [13] (Black J).

Disposition

33    In all the circumstances I was satisfied, for the reasons outlined above, that orders be made approving the Scheme and exempting AEG from compliance with s 411(11) of the Act.

Associate:    

Dated:    23 September 2022