CCPI Holdings Pty Ltd v Joan Hose and Ronald Hose
[2011] VSC 34
•17 February 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST E
No. 05700 of 2010
IN THE MATTER of PLASTREAM PIPE TECHNOLOGIES PTY LTD (ACN 111 107 852)
| CCPI HOLDINGS PTY LTD (ACN 143 409 705) | Plaintiff |
| v | |
| JOAN HOSE AND RONALD HOSE | Defendants |
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JUDGE: | Davies J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 February 2011 | |
DATE OF JUDGMENT: | 17 February 2011 | |
CASE MAY BE CITED AS: | CCPI Holdings Pty Ltd v Joan Hose and Ronald Hose | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 34 | |
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TAKEOVERS – Compulsory acquisition – Application for Court approval – Expert report – Whether Court concludes fair price offered – Corporations Act 2001 (Cth) ss 664F, 667C.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr. P D Herzfeld | Allens Arthur Robinson |
HER HONOUR:
The plaintiff (“CCPI”), which holds approximately 99.77% of the shares in Plastream Pipe Technologies Pty Ltd (“Plastream”), seeks the Court’s approval under s 664F(3) of the Corporations Act 2001 (Cth) (“the Act”) for the compulsory acquisition of the remaining issued ordinary shares in Plastream on the terms set out in a compulsory acquisition notice (“the notice”) that CCPI gave to the other remaining shareholders. Two shareholders (“the defendants”) have exercised their right under s 664E of the Act to object to the acquisition. If CCPI establishes that the terms set out in the notice give a “fair value” for the shares, the Court is directed by s 664F(3) of the Act to approve the share acquisition on those terms. Otherwise the Court must confirm that the acquisition will not take place.[1] The defendants did not appear at the hearing and put no submissions in opposition.
[1]Corporations Act 2001 (Cth) s 664F(3).
The determination of “fair value” for this purpose is prescribed by s 667C of the Act. Section 667C provides that:
(1) To determine what is fair value for securities for the purposes of this Chapter:
(a) first, assess the value of the company as a whole; and
(b)then allocate that value among the classes of issued securities in the company (taking into account the relative financial risk, and voting and distribution rights, of the classes); and
(c)then allocate the value of each class pro rata among the securities in that class (without allowing a premium or applying a discount for particular securities in that class).
(2)Without limiting subsection (1), in determining what is fair value for securities for the purposes of this Chapter, the consideration (if any) paid for securities in that class within the previous 6 months must be taken into account.
As Plastream has only one class of shares, sub-s (1)(b) is not relevant.
In Teh v Ramsay Centauri Pty Ltd[2] Barrett J explained the interaction of sub-ss (1) and (2) of s 667C:
[T]he process in s 667C(1) is to be undertaken first and, after the result it produces has been ascertained, that result is to be reviewed in the light of the material to which s 667C(2) directs attention … so that a decision can be made as to whether that outcome needs adjustment before the statutory result is regarded as having emerged.[3]
The section recognises that the price paid for securities of the same class of shares within the previous six months may be an indicator of “fair value” and accordingly it is a factor that the expert must take into account in determining “fair value” for the purposes of a compulsory acquisition. It does not follow however that an earlier purchase necessarily will be a reliable guide to the fair value of the shares.[4] For example the earlier purchase may have been affected by special factors that impacted on price.
[2](2002) 42 ACSR 354.
[3]Ibid 359-360.
[4]Bromley Investments Pty Ltd v Elkington (2003) 47 ACSR 273, 280 [27] (Williams JA).
In Capricorn Diamonds Investments Pty Ltd v Catto[5] Warren J (as her Honour then was) held that the value of special benefits to the acquirer should not be included in the calculation of the value of the company as a whole for the purposes of determining “fair value” of securities as prescribed by s 667C.[6] Similarly in Teh v Ramsay Centauri Pty Ltd Barrett J said:
The assumed parties to the hypothetical transaction of sale and purchase to which this test directs attention lack personal attributes, aspirations and interests, apart from their assumed willingness to deal and their familiarity with the subject matter and circumstances which might affect its value one way or the other. It follows that, in the s 667C(1)(a) context, the special concern of a particular buyer to obtain synergies or rationalisation benefits through ownership of the company must be disregarded, as must particular concerns of a particular seller to sell because of, for example, a pressing need for cash. Determination of the “value of the company as a whole” looks solely to the stand-alone worth of the particular collection of benefits and detriments represented by the enterprise, viewed through the eyes of the hypothetical buyer and seller whose sole motivations are those related to those benefits and detriments in their own right, unaffected by other considerations.[7]
This proposition was affirmed by the Victorian Court of Appeal in Winpar Holdings Ltd v Austrim Nylex Ltd.[8]
[5](2002) 5 VR 61.
[6]Ibid 76 [59].
[7](2002) 42 ACSR 354, 358 [16].
[8](2005) 54 ACSR 562, 573-574 [35].
CCPI has offered $0.01 per share. That consideration is less than the price that it paid when it acquired its shareholding on 11 May 2010, paying $0.037 per share. Notwithstanding the differential, CCPI argues that $0.01 per share is “fair value” for the shares. CCPI relies on an expert report from RSM Bird Cameron Corporate Pty Ltd (“RSM”) to establish “fair value”. RSM was the expert nominated by ASIC under s 667AA to prepare an expert’s report under and in compliance with s 667A. RSM valued the shares using two methodologies and concluded, in its expert opinion, that the fair value of a Plastream share is between $0.0026 and $0.0066 per share or between $0.0019 and $0.0078. RSM concluded:
The price to be paid to shareholders (as set out in the Compulsory Acquisition Notice) is $0.01 per share. As the price to be paid to shareholders is above our valuation range, in our opinion the terms proposed in the Compulsory Acquisition Notice give a fair value for the Shares.[9]
[9]Independent Expert’s Report of RSM Bird Cameron Corporate Pty Ltd, 2 [2.2], 18 [7.33].
RSM expressed its expert view that the consideration paid by CCPI was not relevant in determining the fair value of a Plastream share as the consideration of $0.037 per share paid by CCPI included a significant premium for CCPI acquiring the rights to, and control over, Plastream’s rights to commercialise technology licenced to Plastream. The reasons for its view are set out in its report, supplemented by a further letter to the Australian Securities and Investments Commission from RSM elaborating on those reasons.
The Court should accept that report as establishing the “fair value” of the shares unless the report does not comply with the process prescribed by s 667C to determine fair price or contains such deficiencies that the Court could not rely on it to establish the “fair value”. In Bromley Investments Pty Ltd v Elkington Williams JA said:
The essential task of the judge is to determine whether the price offered is fair and that decision must largely be based on the report of the expert furnished pursuant to s 667AA. Of course, if at the end of the hearing the judge was of the view that there were such deficiencies in the report that made it impossible to determine whether or not the price offered was fair, approval would be refused. But that does not mean that the report must be beyond criticism before the judge could act on it and conclude that the price offered was fair.[10]
[10]Ibid 279 [18].
Williams JA later said:
As in all valuation cases arguments can always be addressed in support of a contention that the figure arrived at by the valuer was either too high or too low. Valuation is not an absolute science.[11]
Section 667C does not identify the valuation methodology to be applied but as Barrett J in Teh v Ramsay Centauri Pty Ltd observed, the determination is left to accepted valuation methodologies.[12]
[11]Ibid 280 [27].
[12](2002) 42 ACSR 354, 359-60 [22], [23].
I am satisfied that RSM determined the fair value of a Plastream share in accordance with s 667C. RSM directed itself to the relevant statutory provision [13] and the correct understanding of “fair value”;[14] it stated the background information relevant to the report;[15] it considered the potentially applicable valuation methodologies (consistent with those identified in the ASIC Regulatory Guide) and gave a reasoned choice for adopting the “capitalisation of future maintainable earnings” approach;[16] it applied that approach, with two variations, to obtain value ranges;[17] and, putting aside the CCPI acquisition, it compared the compulsory acquisition price proposed by CCPI to consideration paid within the six months prior to acquisition and found them to be consistent.[18]
[13]Independent Expert’s Report of RSM Bird Cameron Corporate Pty Ltd, 3 [4.3-4.4].
[14]Ibid 3 [4.5-4.6].
[15]Ibid 4-5 [5.1-5.10].
[16]Ibid 9-11 [6.1-6.15].
[17]Ibid 11-15 [7.1-7.21].
[18]Ibid 16 [7.23-7.25].
Critically and relevantly, RSM also compared the compulsory acquisition price proposed by CCPI to the consideration that CCPI paid for the shares. I am satisfied that RSM adequately addressed the reasons for its conclusion that the consideration paid by CCPI to obtain the 99.77% interest in Plastream was not relevant to the value of the remaining Plastream securities.
I am, in the circumstances, satisfied that the compulsory acquisition notice gave fair value for the Plastream shares, the subject of the notice. Accordingly I approve the acquisition by CCPI of all of the issued ordinary shares in Plastream which it does not currently hold on the terms set out in the notice.
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