ASG Group Limited, in the matter of ASG Group Limited
[2016] FCA 1374
•2 November 2016
FEDERAL COURT OF AUSTRALIA
ASG Group Limited, in the matter of ASG Group Limited [2016] FCA 1374
File number(s): WAD 484 of 2016 Judge(s): SIOPIS J Date of judgment: 2 November 2016 Catchwords: CORPORATIONS – application for the convening of a meeting of members to consider a scheme of arrangement – exclusivity provisions – performance risk. Legislation: Corporations Act 2001 (Cth) s 411(1) Date of hearing: 2 November 2016 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 28 Counsel for the Plaintiff: Mr M Lundberg and Mr AD Gorovtsov Solicitor for the Plaintiff: King & Wood Mallesons Counsel for Nomura Research Institute Ltd: Mr C Belyea Solicitor for Nomura Research Institute Ltd: Clayton Utz ORDERS
WAD 484 of 2016 IN THE MATTER OF ASG GROUP LIMITED (ACN 070 045 117) ASG GROUP LIMITED (ACN 070 045 117)
Plaintiff
JUDGE:
SIOPIS J
DATE OF ORDER:
2 NOVEMBER 2016
THE COURT ORDERS THAT:
1.The Plaintiff convene a meeting of holders of fully paid ordinary shares (Shares) in the capital of the Plaintiff (Shareholders) as at 4 pm AWST on 6 December 2016 for the purpose of considering and, if thought fit, approving (with or without amendment) the proposed scheme of arrangement (Scheme) which is Annexure C to the draft scheme booklet and explanatory statement, being Annexure “SBM-6” to the second affidavit of Shaun Barry McRobert sworn 31 October 2016 (Scheme Booklet), and such meeting to be held at 10.00 am at Parmelia Hilton Perth Hotel, 14 Mill Street, Perth, Western Australia on 8 December 2016 or such other date as the Court may approve (Scheme Meeting).
2.Subject to these orders, the Scheme Meeting is to be convened, held and conducted in accordance with:
(a)the provisions of Part 2G.2 of the Corporations Act 2001 (Cth) that apply to members of a company and the provisions of the Plaintiff’s constitution that are not inconsistent therewith and that apply to meetings of members;
(b)Section 1319 of the Corporations Act 2001 (Cth), on the basis that Corporations Regulations 5.6.11 to 5.6.11A and 5.6.13A to 5.6.36A do not apply to the meeting; and
(c)the notice of meeting in the form or to the effect of the notice contained in Annexure D of the Scheme Booklet.
3.Ian Gordon Campbell or, failing him, Stephen Edward Oliver Johnston is to be appointed to act as chairperson of the Scheme Meeting (Chairperson) and report the result of the Scheme Meeting to this Court.
4.The Chairperson can adjourn the Scheme Meeting in his discretion.
5.Three Shareholders present in person or by proxy, corporate representative or attorney under power and entitled to vote shall constitute a quorum for the Scheme Meeting.
6.Voting on the resolution to approve the Scheme is to be conducted by way of poll.
7.At the Scheme Meeting each Shareholder present and entitled to vote, will be entitled to one vote for each fully paid ordinary share in the capital of the Plaintiff that the Shareholder is registered as holding at 4 pm AWST on 6 December 2016.
8.The Scheme Booklet, which contains an explanatory statement required by Section 412(1)(a) of the Corporations Act 2001 (Cth), be and is hereby approved (subject to the word “third” being replaced with the word “fourth” in the definition of “Implementation Date”).
9.Subject to registration of the Scheme Booklet with the Australian Securities and Investments Commission (ASIC) pursuant to Section 412(6) of the Corporations Act 2001 (Cth), the Plaintiff is to provide the Scheme Booklet, substantially in the form approved under Order 8 above, together with a personalised proxy form in respect of the Scheme Meeting, being substantially in the form of Annexure “SBM-7” to the second affidavit of Shaun Barry McRobert sworn 31 October 2016, to the Shareholders who appear on the register of members by no later than 7 November 2016:
(a)in the case of each Shareholder who has a registered address in Australia, by dispatching by pre-paid post, parcel post or courier;
(b)in the case of each Shareholder who has a registered address outside Australia, by dispatching by pre-paid airmail or air courier; and
(c)in the case of each Shareholder who has nominated an electronic address for the purpose of receiving notifications of notices of any meetings from Link Market Services Pty Ltd, by sending an email containing a URL link to the Scheme Booklet and a personalised Proxy Form to the email address nominated by that Shareholder.
10.If an email notification of a failure to deliver an email to a Shareholder’s nominated electronic address pursuant to Order 9(c) of these orders is received, there be dispatched by prepaid post, parcel post or courier to, the address of each such Shareholder as set out in the register of members, a copy of the Scheme Booklet and a personalised Proxy Form.
11.Dispatch of the documents referred to in paragraphs 9 to 10 of these Orders in accordance with their terms is to be taken to be sufficient notice of the Scheme Meeting.
12.Leave be given to the Plaintiff to make application for orders under Sections 411(4) and 411(6) of the Act following the Scheme Meeting for approval of the Scheme to be heard at 10:15am on Monday, 12 December 2016 or such other date as the Court sees fit to set for such purpose.
13.The Plaintiff is to give notice of the hearing of the application pursuant to Section 411(4)(b) of the Corporations Act 2001 (Cth) for orders approving the Scheme by publishing an advertisement in the public notices column of “The Australian” and “The West Australian” newspapers substantially in the form of Annexure A to these orders, such advertisement to be published on or before 6 December 2016 and the Plaintiff otherwise be exempted from compliance with rule 3.4 of the Federal Court (Corporations) Rules 2000.
14.There be liberty to apply upon the giving of 48 hours’ notice to ASIC.
15.An office copy of these orders shall be lodged with ASIC as soon as practicable after these orders are made.
Annexure A
ASG GROUP LIMITED ACN 070 045 117
Notice of hearing to approve Scheme of Arrangement pursuant to section 411 of the Corporations Act 2001 (Cth)
TO all the members of ASG Group Limited (ASG)
TAKE NOTICE that at 10:15 am on 12 December 2016 the Federal Court of Australia at the Peter Durack Commonwealth Law Courts Building, 1 Victoria Avenue, PERTH WA 6000 will hear an application by ASG seeking the approval of a scheme of arrangement between ASG and its ordinary shareholders to be proposed by resolution at the meeting of its members to be held at 10.00 am on 8 December 2016 at Parmelia Hilton Perth Hotel, 14 Mill Street, Perth, Western Australia.
If you wish to oppose the approval of the proposed scheme of arrangement, you must file and serve on ASG 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 ASG at its address for service at least 1 day before the date fixed for the hearing of the application.
The address for service of ASG is c/- King & Wood Mallesons, Level 30, QV.1 Building, 250 St Georges Terrace, PERTH WA 6000.
King & Wood Mallesons, solicitors for ASG, the plaintiff.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
SIOPIS J:
This is an application under s 411(1) of the Corporations Act 2001 (Cth) for orders for the convening of a meeting of the members of ASG Group Limited (ASG) for the purpose of considering, and, if thought fit, approving a scheme of arrangement between ASG and its members.
ASG is an Australian public company which is listed on the Australian Stock Exchange. Its business is the provision of information technology business solutions, software systems and the like. The proposed scheme is that Nomura Research Institute Ltd (Nomura), a company listed on the Tokyo Stock Exchange which has a market capitalisation of approximately AUD10.2 billion, will acquire all of the shares in ASG. The scheme consideration is $1.63 per share in cash.
The evidence shows that $1.63 per share is about 28% to 38% premium above the average share price of ASG shares before the announcement of the scheme was made. There is also evidence from the independent experts who valued the shares that the scheme consideration is fair and reasonable.
There are about 201.8 million shares in ASG on issue. There are also on issue 12.5 million unlisted options which, if I understand it, are held mainly by employees in the company.
A special option cancellation process is proposed which will take effect outside of the scheme of arrangement. Under this process, each of the option holders can enter into an option cancellation deed whereby the options will be cancelled on the payment of a fee. The money to pay for the implementation of this cancellation process is to be provided by Nomura. The cancellation process has attracted the attention of the Australian Securities and Investments Commission (ASIC) which has the view that this process could possibly be seen as an inducement to members, who are also option holders, to vote for the scheme. ASIC has, therefore, required that ASG tag the votes of the members who are also option holders, cast at the meeting. Mr Lundberg, counsel for ASG, has confirmed to the Court that ASG will abide by this ASIC requirement.
On an application for the convening of a meeting of members made under s 411(1) of the Corporations Act, there are four main considerations to which the Court will have regard.
The first is whether the scheme which is proposed is within the statutory concept of being a scheme of arrangement or compromise.
The second consideration is whether there has been compliance with the requirements of the Corporations Act and Corporations Regulations 2001 (Cth) affecting schemes of arrangement; and whether there will be a sufficient disclosure of all the main facts of the scheme to the members, so that the members will be able to exercise their decision whether to approve the scheme on an informed basis.
The third consideration is whether ASIC has had a reasonable opportunity to examine the proposed scheme.
The fourth consideration is whether, insofar as can be determined at this stage, there is any particular reason why in due course the scheme should not receive the Court’s approval if the necessary majorities are obtained at the meeting.
As to the first of those requirements, there is no doubt that the proposed scheme of arrangement is, as Mr Lundberg described it, a conventional scheme of arrangement, which falls within the statutory concept of a scheme of arrangement. So the first requirement is satisfied.
In relation to the second requirement, Mr Lundberg has helpfully annexed to his submissions a schedule which, by reference to the relevant parts of the materials before the Court, demonstrates compliance with the statutory and regulatory requirements. I am satisfied that there has been sufficient compliance.
The scheme booklet contains the essential elements in relation to the scheme and also makes disclosure of some matters to which I will refer later, which are matters which should be brought to the attention of members. In addition, the scheme booklet also contains the notice referred to in the Court’s Commercial and Corporations Practice Note (C&C-1) as to the effect of the Court approving an application for the convening of a scheme meeting and the approval of the scheme booklet.
I have also seen evidence from Mr Stephen Johnston, who is a non-executive director of ASG, as well as the appointed chairperson of the Independent Board Committee established to assess the scheme of arrangement the subject of this proceeding, and he has deposed to the steps which have been undertaken to ensure that the information contained in the scheme booklet is accurate.
I am, therefore, satisfied in relation to the second of the requirements.
The third requirement is that ASIC shall have had an opportunity to review the scheme documentation, and, in particular, the draft scheme booklet. ASIC has provided a letter, dated 1 Novembers 2016, whereby ASIC has stated that it has had a sufficient opportunity to review the scheme documentation. The letter also refers to ASG’s agreement to its requirement that the votes of the members who are option holders should be tagged. ASIC also said that on that basis, it does not intend to appear, and make submissions or intervene to oppose the scheme, at the first Court hearing. ASIC has not appeared today. I might add that at the hearing today, Mr Belyea appeared for Nomura.
The last of the requirements is that the Court should be satisfied on the materials which are currently before the Court, that there is no obstacle to the approval of the scheme in the event that the requisite majorities are ultimately obtained at the scheme meeting.
In that regard, I have been taken by Mr Lundberg in his helpful submissions to some specific matters which are usually dealt with in considering this question.
The scheme implementation agreement contains exclusivity provisions which impose an obligation on ASG not to solicit new offers during the exclusivity period, and also not to engage in negotiations. There is also a no due diligence provision.
However, all of those provisions are subject to what is referred to as a “fiduciary carve-out” which is set out in para 10.6 of the scheme implementation agreement. Further, the exclusivity period is not unreasonable, effectively being until the scheme is approved at the second hearing which is set down for 12 December 2016. I also note that the existence and content of the exclusivity provisions are clearly brought to the attention of the members in the scheme booklet.
Accordingly, I am satisfied that the exclusivity provisions would not constitute a reason why the scheme should not be approved at the second hearing in the event that the necessary majorities are obtained.
There is provision in the scheme implementation agreement for the payment of break fees in the sum of AUD3.3 million. There is evidence from Mr Johnston that these break fees were negotiated at arm’s length. I also observe that the obligation to break fees is to a large extent reciprocal between ASG and Nomura. Further, a break fee is not payable simply if the members do not vote in favour of the scheme; and the obligation on ASG to pay a break fee is, therefore, unlikely to influence the members in deciding whether or not to vote to accept the scheme. In addition, I note that the break fee is less than 1% of the equity value of ASG, and so falls within the guidelines referred to in the Takeovers Panel Guidance Note 7 – Lock‑up devices.
In my view, the existence of the break fees provisions would not constitute a reason not to approve the scheme in the event that the necessary majorities are obtained.
There is also evidence before the Court which deals with performance risk. The performance risk is dealt with by requiring that Nomura transfer the total of the scheme consideration amount to ASG a short time before the date on which the payments are due to be paid to members and for ASG to hold those funds on trust for the members of ASG whose shares will be acquired. In addition, there is a deed poll which has been executed by Nomura in favour of ASG’s members binding Nomura to performance of its obligations under the scheme. There is also in evidence an opinion from Mr Katsuhiko Fujihira, a partner of the law firm, Ito & Mitomi in Tokyo, Japan, that the deed poll is enforceable in its terms under Japanese law. Accordingly, on the basis of the evidence which is before the Court, I am satisfied that the performance risk has been adequately addressed.
There was also an issue raised in the submissions about the location of the members meeting being in Perth, but I am satisfied that there is a sufficient connection with Perth for that city to be an appropriate venue for the meeting.
I have already mentioned the fact that the vote tagging required by ASIC will be undertaken by ASG. The issue giving rise to that requirement may or may not be revisited at the second hearing of this matter.
It is not necessary, at this stage, to deal with s 411(17) of the Corporations Act, albeit that Mr Lundberg has referred to that subsection in his submissions.
In these circumstances, I will make the orders in the amended minute of orders.
I certify that the preceding twenty‑eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate:
Dated: 17 November 2016
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