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  • Unreported Judgment

Re Terry White Group Ltd

 

[2018] QSC 254

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Re Terry White Group Limited (No 1) [2018] QSC 254

PARTIES:

TERRY WHITE GROUP LIMITED

ACN 136 808 243

(applicant)

FILE NO/S:

SC No 11492 of 2018

DIVISION:

Trial Division

PROCEEDING:

Originating Application

DELIVERED EX TEMPORE ON:

2 November 2018

DELIVERED AT:

Brisbane 

HEARING DATE:

2 November 2018

JUDGE:

Bond J

ORDER:

The orders of the Court are that:

In this Order, the term ‘Related Entity’ of a party means an entity which:

  1. (a)
    is a related body corporate to that party within the meaning of section 50 of the Corporations Act 2001 (Cth) (the Act);
  2. (b)
    is in any consolidated entity (as defined in section 9 of the Act) which contains the party; or
  3. (c)
    is controlled by the party within the meaning of section 50AA of the Act.

In this Order, the term ‘Scheme Shareholder’ means a shareholder of the Applicant other than:

  1. (a)
    EBOS PH Pty Ltd ACN 613 974 253 (EBOS PH);
  2. (b)
    a Related Entity of EBOS PH (other than subsidiaries of the Applicant);
  3. (c)
    persons holding shares in the Applicant on behalf of, or for the benefit of, EBOS PH or a Related Entity of EBOS PH.
  1. The matter be placed on the Commercial List. 
  2. Pursuant to section 411(1) of the Act, the Applicant shall convene a meeting (Scheme Meeting) of all Scheme Shareholders to consider, and if thought fit approve, with or without modification, a scheme of arrangement (Scheme) between the Applicant and the Scheme Shareholders comprised of Attachment C of the document entitled ‘Terry White Group Limited Scheme Booklet’ (Scheme Booklet), being exhibit ‘JBH-17’ to the third affidavit of James Brett Lochran Heading, sworn and filed on 2 November 2018. 
  3. Pursuant to section 411(1) of the Act, the explanatory statement substantially in the form of the Scheme Booklet be approved for distribution to Scheme Shareholders.   
  4. The Scheme Meeting shall be held commencing at 3.30 pm AEST on 5 December 2018 at Moda Events Portside, Viewing Room, Level 2, Portside Wharf, 39 Hercules Street, Hamilton QLD 4007.
  5. The Scheme Meeting shall be convened by:
    1. (a)
      the Applicant sending or causing the following to be sent by prepaid priority post to each Scheme Shareholder appearing in the Applicant’s share register as at 5:00pm on 5 November 2018 with an address for notices within Australia (including those Scheme Shareholders who have consented to receiving notices electronically):
      1. the Scheme Booklet substantially in the form approved by the Court;
      2. a notice of meeting substantially in the form in which it appears in Attachment D of the Scheme Booklet (Notice of Meeting);
      3. a Scheme Proxy Form for the purpose of the submission of proxies by Scheme Shareholders substantially in the form in which it appears in exhibit ‘JYT-8’ to the first affidavit of Joe Yew Tham sworn on 30 October 2018 (First Tham Affidavit);
      4. a Direct Credit Request Form substantially in the form in which it appears in exhibit ‘JYT-8’ to the First Tham Affidavit; and             
      5. a reply-paid envelope addressed to Link Market Services Limited ACN 083 214 537 (Link) for the return of the Scheme Proxy Form; and
    2. (b)
      the Applicant sending or causing the following to be sent by international express post to each Scheme Shareholder appearing in the Applicant’s share register as at 5:00pm on 5 November 2018 with an address for notices outside Australia (including those Scheme Shareholders who have consented to receiving notices electronically):
      1. the Scheme Booklet substantially in the form approved by the Court;
      2. a Notice of Meeting;
      3. a Scheme Proxy Form for the purpose of the submission of proxies by Scheme Shareholders substantially in the form in which it appears in exhibit ‘JYT-8’ to the First Tham Affidavit;
      4. a Direct Credit Request Form substantially in the form in which it appears in exhibit ‘JYT-8’ to the First Tham Affidavit; and             
      5. a reply-paid envelope addressed to Link for the return of the Scheme Proxy Form; and
    3. (c)
      the Applicant sending or causing to be sent to all Scheme Shareholders who have consented to receive notices electronically as at 5:00pm on 5 November 2018, an email to the email addresses nominated by each Scheme Shareholder, substantially in the form in which it appears in exhibit ‘JYT-18’ to the second affidavit of Joe Yew Tham sworn on 1 November 2018 containing web links, which will enable Scheme Shareholders to:
      1. view the scheme Booklet (including the Notice of Meeting) online; and
      2. lodge proxy instructions and update their nominated bank account details online; and
    4. (d)
      the Applicant uploading a copy of the Scheme Booklet (including the Notice of Meeting) on the Applicant’s investor website (http://investors.terrywhitegroup.com.au/) in the ‘Shareholder Announcements’ section of the website.
  6. Ronald Albert Higham or, in his absence, Jane Matisse McKellar, is authorised to act as chairman of the Scheme Meeting and any adjournments of the Scheme Meeting and to report to the Court on the outcome of the Scheme Meeting and any adjournments of the Scheme Meeting. 
  7. A proxy may not vote at the Scheme Meeting unless the instrument appointing the proxy is received by Link by 3:30pm on 3 December 2018 in the manner specified in the Notice of Meeting.
  8. An attorney or corporate representative may not vote at the Scheme Meeting unless the instrument appointing the attorney or corporate representative is lodged at the registration desk on the day of the Scheme Meeting or with Link by 3:30pm on 3 December 2018 in the manner specified in the Notice of Meeting.
  9. These proceedings shall be adjourned until 10am on 7 December 2018 before Bond J.

CATCHWORDS:

CORPORATIONS – ARRANGEMENTS AND RECONSTRUCTIONS – SCHEMES OF ARRANGEMENT OR COMPROMISE – APPLICATION FOR ORDER FOR MEETING – where the applicant proposes a scheme of arrangement whereby a company would acquire all of the shares in the applicant not already held by it or its related entities – where the applicant seeks an order under s 411(1) of the Corporations Act 2001 (Cth) that a meeting of its shareholders be convened so that they may consider whether to pass a resolution to approve the scheme of arrangement – whether the Court should make an order for a meeting of the applicant company’s shareholders to be convened

Corporations Act 2001 (Cth) s 411

Re Arthur Yates & Co Ltd (2001) 36 ACSR 758, applied

Re Healthscope Limited [2010] VSC 367, considered

Re Hills Motorway Management Ltd (2002) 43 ACSR 101, applied

Re Hostworks Group Limited [2008] FCA 64, considered

COUNSEL:

K E Downes QC for the applicant

SOLICITORS:

Jones Day for the applicant

HIS HONOUR:   The applicant seeks an order under s 411(1) of the Corporations Act 2001 (Cth) that a meeting of its shareholders be convened so that they may consider whether to pass a resolution to approve a scheme of arrangement.  Under the scheme, EBOS PH would acquire all of the shares in the applicant not already held by it or its related entities, the shares to be acquired being defined as the “scheme shares”. 

The proposed scheme is between the applicant and a class of its members referred to as the “scheme shareholders”.  They comprise, effectively, all of its members except the “excluded shareholders”, namely EBOS PH and any of its related entities which hold shares in the applicant.  The share capital of the applicant presently comprises 28,038,385 shares.  Of those, a minority of 14,006,692 are the scheme shares, which are to be acquired by EBOS PH if the scheme is ultimately implemented.  There are certain subcategories of ordinary scheme shares which are shares held by shareholders pursuant to a loan share plan and certain shares held by shareholders pursuant to an executive share option plan.  I will return to the significance of that fact. 

There are six considerations relevant to whether a Court should make an order of the nature of that sought by the applicant before me today.  They are:

  1. (1)
    whether the applicant is a Part 5.1 body under the Act;
  2. (2)
    whether the proposed scheme falls within the definition of “arrangement”;
  3. (3)
    whether the scheme, as a members compromise or arrangement, will be between the applicant Part 5.1 body and a class of its members, namely the scheme shareholders;
  4. (4)
    whether the scheme booklet, which is proposed to be distributed in a way identified in the affidavits before me, amounts to appropriate disclosure within the meaning of the Act and applicable corporations regulations;
  5. (5)
    whether there is any reason why the Court, assuming the scheme resolutions pass with the appropriate majorities at the meeting convened, would not approve the scheme by making approval orders on the second court hearing; and
  6. (6)
    whether ASIC has been given the requisite notice of the application today. 

I will deal first with the first, second, and sixth considerations and return to the others. 

As to the first consideration, there is no dispute.  The applicant is a Part 5.1 body because it is a company registered under the Corporations Act. 

As to the second consideration, the scheme, being an acquisition scheme, is plainly an arrangement within the meaning of the Act. 

As to the sixth consideration:

  1. (a)
    The second and third affidavit of Mr Heading and information provided to me from the bar table demonstrates the communications that have occurred between the applicant by its solicitors and ASIC.
  1. (b)
    I am satisfied that ASIC has been given at least 14 days notice of this hearing and I am satisfied that ASIC has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and to make submissions to the Court. 
  1. (c)
    Indeed, Mr Heading has put before me the letter from ASIC communicating to me ASIC’s position.  ASIC has advised that it does not currently propose to appear to make submissions or intervene to oppose the scheme at the first hearing today.  Its current intention is that at the second hearing it will have no objection to the scheme. 
  1. (d)
    It will later appear that yesterday I caused my associate to raise with the applicant for submissions today a concern I had in relation to the fiduciary carve-out to the exclusivity provisions in the scheme implementation deed.  That was dealt with by making an amendment to the scheme implementation deed and associated amendments to the scheme booklet.  As will appear, I find what has occurred to be a satisfactory response to the issue I raised.  Presently, the reason I mention it is that not only was the change made but the change and my enquiry were placed by the applicant’s solicitors before ASIC and ASIC has advised that that information does not cause it to change its position. 

The third consideration addresses the fact that the scheme is proposed to take place between the applicant and the scheme shareholders as a single class.  There are, in effect, four subgroups of the scheme shares: ordinary shares; two types of holdings of ordinary shares acquired under a loan share plan; and shares acquired under the executive share option plan that the applicant has in place.  Those facts give rise to the consideration whether it is appropriate that the scheme shareholders be dealt with as a single class and that I convene only a meeting of a single class as opposed to separate classes.  The test is that set out by Barrett J in Re Hills Motorway Management Ltd (2002) 43 ACSR 101 at [12] and the question is whether the proposed single class, notwithstanding what might be thought of as differential subgroups, can nevertheless be regarded as a group having community of interest.  As Justice Barrett said:

The court must ask itself whether the rights and entitlements of the different groups, viewed in the totality of the scheme’s context, are so dissimilar as to make it impossible for them to consult together with a view to their common interest. 

I am persuaded that the particular characteristics of the shares and the way in which they are proposed to be dealt with means that the scheme shareholders form a single class, notwithstanding that the scheme shares comprise the four sub-groups that I have earlier outlined.  I reach that conclusion notwithstanding that certain of the directors of the applicant have direct or indirect interests in the scheme shares.

The shares which have been acquired under the loan share plan fall within two sub-groups:  one which have been issued and are fully vested, referred to as the “2015 loan share plan” or “LSP shares”, and one referred to as the “2017 LSP shares”, which are currently unvested.  The conditions on which those shares have been acquired are such that there might be moneys outstanding pursuant to loans, but that is proposed to be dealt with under the scheme by provisions that ensure the consideration for acquisition under the scheme will be applied first to retire any outstanding debt and then the balance going to the shareholder.

There are also provisions under the loan share plan which might have operated such that the holder of certain parcels of these shares might not be able to vote.  However, it is a condition of the scheme that the applicant’s directors take action in such a way as to ensure that holders of all of the loan share plan shares are able to participate in voting in the same way as any ordinary shareholders.  The result is that I accept the submissions that have been advanced in relation to the loan share plans that:

  1. (a)
    there is not, in substance, any differentiation between holders of the 2015 LSP shares and 2017 LSP shares on the one hand, and all other scheme shareholders on the other hand;
  1. (b)
    holders of the 2015 and 2017 LSP shares have the same community of interest as all other scheme shareholders; and
  1. (c)
    the two sets of holders do not form a separate class of scheme shareholders for the purpose of convening a scheme meeting and the scheme shareholders considering whether to pass the scheme resolution. 

I think the same may be said for the holders of the executive share option shares.  The holders of those shares have the same rights as all other scheme shareholders to vote at the scheme meeting.  And accordingly, I reach the same three conclusions in relation to the holders of the executive share option plan shares that I have reached in relation to the two types of LSP shareholders. 

I turn to the question of whether the extent of interest in certain shares held by the applicant’s directors is such that they might also not have the same community of interest as other shareholders.  The evidence is such that the minor interest they have in the applicant’s shares and in the EBOS PH shares is such that they should not be so regarded.  I do not think their interest would make it impossible for them and any other ordinary scheme shareholders to consult together with a view to the common interest in making the decision that is contemplated. 

The result is, so far as this third consideration is concerned, I think it is proper for the scheme to proceed on the basis that there is one single class of scheme shareholders. 

The fourth consideration concerns whether the scheme booklet proposed to be sent to scheme shareholders provides the appropriate disclosure, addressing the specific prescribed matters identified in the regulations to the Corporations Act and appropriately explaining the effect of the scheme to scheme shareholders.  Written submissions have been advanced to me by the applicant on this point.  In particular an annexure to the written submissions sets out a checklist which explains how the prescribed matters in the regulations are addressed in the specific sections of the scheme booklet.  I have examined how the checklist operates in relation to the scheme booklet and I am satisfied with it.  I have reviewed the scheme booklet and I am satisfied that it adequately explains the effect of the scheme to scheme shareholders and provides them with information which is material to the scheme. 

The fifth consideration concerns the likelihood that the Court might make approval orders at the second hearing if the scheme resolution is passed with the appropriate statutory majorities on the occasion of the meeting convened by orders made at the first court hearing.  The question is whether I should form the view that the Court would be likely to make approval orders on the second court hearing.  Here, the law plainly indicates that the Court at the first court hearing does not consider the business or commercial efficacy of the scheme but has regard to whether the scheme is fit for consideration by the members in that sensible business persons might think the scheme was of benefit to the members and that it was a commercial proposition likely to get Court approval if passed with the sufficient majorities.

Here, I conclude that the sufficient likelihood exists because:

  1. (a)
    The applicant, by the scheme booklet, provides comprehensive disclosure to the scheme shareholders.
  1. (b)
    It is not apparent to me, and nothing has yet been drawn to my attention by Counsel or any other person, that there is any suggestion that the scheme might be unlawful.  To the contrary, it appears to be an orthodox scheme of arrangement for the acquisition of shares.
  1. (c)
    The scheme has the unanimous support of the independent directors of the applicant.
  1. (d)
    An independent expert has considered the terms of the scheme are fair and reasonable and, accordingly, the scheme is in the best interests of scheme shareholders.
  1. (e)
    There is no element of unfairness as between the different scheme shareholders.

So far as the considerations mentioned by the independent expert, I can mention these matters.  The scheme proposes that EBOS PH will acquire all of the issued capital of the applicant, which it does not already own, for a cash amount of $3.55 per share.  That consideration represents a 13 per cent premium to the midpoint of the fair value assessed by the independent experts who come up with a low figure of $2.93 to a high figure of $3.55.  It is not otherwise necessary, I think, to analyse the opinion expressed by the independent expert. 

On this consideration, I am not, as I have mentioned, analysing the commercial efficacy of the scheme, but really whether there is some clearly objectionable feature that might remove altogether the possibility of sanctioning the scheme if it is regarded as sufficiently attractive to receive the necessary approval by votes of the shareholders.  And as I have mentioned, I form the view that there is not. 

There are some other subsidiary matters which I have considered in order to form that view. 

The first is whether there are any performance risk concerns in relation to scheme shareholders.  In this case, the performance risk is addressed by a deed poll by the acquiring party.  The acquiring party will not obtain its shares until it has first placed the scheme consideration on trust for subsequent payment to the scheme shareholders.  There is no performance risk to scheme shareholders with respect to the implementation of a scheme. 

The second is that there are, in the scheme document, provisions that will operate such that each scheme shareholder is deemed to have warranted to the applicant and to the acquiring company, as at the implementation date that the scheme shares will be fully paid and free from encumbrances, that they have full power and capacity to sell the shares, and that they have no other existing right to be issued any further shares.  It is not necessary to examine these warranties in any further detail.  They have been sufficiently drawn to the attention of the scheme shareholders in the explanatory material and the present state of authority is that deemed warranties of the kind provided for in this scheme are not objectionable.  I do not think the warranties are of a nature that ought to weigh against the making of orders on this first court hearing. 

The next matter to be dealt with is the exclusivity provisions.  The scheme implementation deed, being the deed between the acquiring party, EBOS PH, and the applicant contains relatively standard provisions concerning restrictions on the applicant from acquiring competing proposals from third parties, namely, a no shop restriction, a no talk restriction, a no due diligence restriction, and a notification of approaches obligation. 

The leading case in this area is that of Re Arthur Yates & Co Ltd (2001) 36 ACSR 758 where Santow J held that exclusivity clauses of such a nature are permissible so long as:

  1. (a)
    they are for no more than a reasonable period capable of precise ascertainment;
  1. (b)
    they are framed so that they are subject to the overriding obligation for directors not to breach their fiduciary duties [I will refer to this as a “fiduciary carve-out”]; and
  1. (c)
    they are adequately disclosed to shareholders in the explanatory memorandum for the scheme.

The present scheme implementation deed is drawn with those principles in mind, and subject to one consideration, I think, has adequately addressed them.  The only consideration that caused me some concern was that the fiduciary carve-out was expressed in these terms:

8.5  Exception to no talk and notification. 

The restrictions in clause 8.3 [the no talk and no due diligence obligation] and the notification obligations in clause 8.4 do not apply to the extent that it restricts [the applicant] or [the applicant’s board] from responding to a bona fide Third Party Proposal (which was not solicited, invited, encouraged, or initiated by [the applicant] or its Representatives in contravention of clause 8.2) provided that the Independent Directors had unanimously determined:

  1. (a)
    in good faith and acting reasonably that:
  1. (i)
    the Third Party Proposal is bona fide; and
  1. (ii)
    it could reasonably be a Superior Proposal; and
  1. (b)
    after receiving written legal advice from its external legal adivsors, that complying with clause 8.3 or 8.4 (as applicable) would be likely to constitute a breach of [the applicant’s] directors’ fiduciary or statutory duties (or could reasonably be expected to lead to a contravention of law). 

When I examined the fiduciary carve-out clause in preparation for this hearing, I was concerned that the provisions requiring that there be unanimity in the directors’ resolutions and that there be pre-existing solicitor’s advice might not be consistent with the Re Arthur Yates & Co Ltd requirements.  I caused my Associate to send an email to Counsel for the applicant and to the solicitors for the applicant in these terms:

One matter has occurred to his Honour on a first examination of counsel’s submission.  He draws your attention to the fiduciary carve out clause in the scheme implementation deed.  Clause 8.5 seems not to permit directors to act contrary to the exclusivity provisions simply because their fiduciary obligations would compel them to do so.  It imposes the additional obstacle of unanimity in the directors and of having a pre-existing solicitors advice.  His Honour would appreciate it if at the hearing he could be advised whether there is any authority which suggests that a clause so drawn is a fiduciary carve out consistent with principle?

The email caused those advising the applicant to examine the issue.  The applicant and the acquiring party, EBOS PH, decided to amend the terms of the scheme implementation deed to delete reference to the requirement for unanimity and to insert in lieu, thereof, a reference requiring merely a majority of the directors.  That variation has caused appropriate consequential changes to be made to the scheme booklet and information to be sent to the scheme shareholders.  So the only issue that otherwise exists in the matters that I raised for the attention of counsel is whether there is any concern as to the requirement for independent advice. 

My attention was drawn to Re Hostworks Group Limited [2008] FCA 64, per Mansfield J at [33] to [37].  The relevant clause required the directors to be satisfied that a competing transaction was bona fide, in writing, by a reputable entity, which they must have determined, in good faith and acting reasonably (after independent advice) was capable of being valued and completed, and to be of higher value to that proposed under the scheme.  Mansfield J found such a clause was satisfactory. Similarly, in Re Healthscope Limited [2010] VSC 367, Davies J, at [17], examined a similar clause, which required legal advice for the carve-out to operate.  I am satisfied that the way in which the applicant has responded to the issue I raised is such that it provides no obstacle to my making the orders that are sought of me today. 

Having regard to the considerations that I have mentioned, I propose to make an order in terms of the draft, which has been provided to me, altered in the manner that I have referred to in discussions with counsel, at paragraph [7].  With that amendment, I make an order in terms of the draft, signed by me and placed with the papers.

Close

Editorial Notes

  • Published Case Name:

    Re Terry White Group Limited (No 1)

  • Shortened Case Name:

    Re Terry White Group Ltd

  • MNC:

    [2018] QSC 254

  • Court:

    QSC

  • Judge(s):

    Bond J

  • Date:

    02 Nov 2018

Litigation History

No Litigation History

Appeal Status

No Status